Cumulant Expansion and Monthly Sum Derivative
Pricing of Securities
2010-12-09 v3 Computational Finance
Abstract
Cumulant expansion is used to derive accurate closed-form approximation for Monthly Sum Options in case of constant volatility model. Payoff of Monthly Sum Option is based on sum of caped (and probably floored) returns. It is noticed, that can be used as a small parameter in Edgeworth expansion. First two leading terms of this expansion are calculated here. It is shown that the suggest closed-form approximation is in a good agreement with numerical results for typical mode parameters.
Keywords
Cite
@article{arxiv.1011.3975,
title = {Cumulant Expansion and Monthly Sum Derivative},
author = {V. M. Belyaev},
journal= {arXiv preprint arXiv:1011.3975},
year = {2010}
}
Comments
8 pages, 2 figures