| |
| Abstract |
| |
| As the distribution of the sum of log-normal distributions is not known, the pricing of basket and average options becomes non-trivial. Accordingly, a large number of numerical methods have been proposed in the literature for the pricing of such options. In this lecture, I first introduce an expansion approach and explain why this approach is so powerful for pricing average options. More precisely, in the first lecture, I propose an approximation method based on the chaos expansion for the pricing of European-style contingent claims, in particular generalized Asian options. In the second lecture, I apply the approach for the pricing of such exotic options as reciprocal options, volume-weighted-average-price (VWAP) options, and barrier options. The application of the expansion approach is non-trivial, because the payoffs of these options are nonlinear. In the third lecture, we consider a fractional volatility model and explain how the expansion approach can be applied. Through numerical examples, I show that a two-factor fractional volatility model can resolve the fractional puzzle, when the correlations between the underlying asset process and the factors of rough volatility and persistence belong to a certain range. |
|
|
|
For more information on all our workshops & seminars, please visit Risk Management Institute website.
For enquiries, please contact Chris Long at rmilhc@nus.edu.sg.
Copyright 2006-2018 © NUS Risk Management Institute.
|
|
|
|
|
|
|
