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A Note on the Pricing of Basket Options Using Taylor Approximations

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.
Year of publication:
2014-04
Authors: Olivares, Pablo ; Alvarez, Alexander
Institutions: arXiv.org
Extent:
application/pdf
Series:
Type of publication: Book / Working Paper
Source:
Persistent link: https://www.econbiz.de/10010758572
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