A Comparison of Alternative Bivariate Normal Probability Estimation Procedures for Compound and Min-Max Options

Pricing compound and min-max options requires the estimation of the bivariate normal probability. Using the slower Simpson numerical integration as the accuracy benchmark, four alternative bivariate normal probability estimation methods are compared in terms of accuracy and speed in pricing compound and min-max options. The results show that the methods of Divgi and Drezner-Wesolowsky seem to be preferred for compound options while the method of Divgi performs best on min-max options. The combined results suggest that the Divgi method offers the best combination of speed and accuracy