A Note on the Pricing of Basket Options Using Taylor Approximations
Pricing of Securities
2014-04-15 v1
Abstract
In this paper we propose a closed-form approximation for the price of basket options under a multivariate Black-Scholes model, based on Taylor expansions and the calculation of mixed exponential-power moments of a Gaussian distribution. Our numerical results show that a second order expansion provides accurate prices of spread options with low computational costs, even for out-of-the-money contracts.
Cite
@article{arxiv.1404.3229,
title = {A Note on the Pricing of Basket Options Using Taylor Approximations},
author = {Pablo Olivares and Alexander Alvarez},
journal= {arXiv preprint arXiv:1404.3229},
year = {2014}
}
Comments
13 pages, 2 figures