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An efficient unified approach for spread option pricing in a copula market model

  • Edoardo Berton
  • , Lorenzo Mercuri*
  • *Autore corrispondente per questo lavoro
  • University of Milan

Risultato della ricerca: Contributo in rivista › Articolo

Abstract

In this study, we propose a new formula for spread option pricing with the dependence of two assets described by a copula function. The proposed method’s advantage lies in its requirement of solely computing one-dimensional integrals. Any univariate stock price process, admitting an affine characteristic function, can be used in our formula to get an efficient numerical pricing procedure for a spread option. In the numerical analysis we present a comparison with the Monte Carlo simulation method to assess the performance of our approach, assuming that the univariate stock price follows three widely applied models: variance gamma, Heston’s stochastic volatility and affine Heston–Nandi GARCH(1,1) models.
Lingua originaleInglese
pagine (da-a)307-329
Numero di pagine23
RivistaAnnals of Operations Research
Volume336
Numero di pubblicazione1-2
DOI
Stato di pubblicazionePubblicato - 2024

All Science Journal Classification (ASJC) codes

  • Scienze delle Decisioni Generali
  • Scienze della Gestione e Ricerca Operativa

Keywords

  • Affine process
  • Copula function
  • Spread options

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