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Study on the Pricing Methods of American Basket Call Option with Dividend

Author: AnNa
Tutor: JinChaoZuo
School: Chongqing University
Course: Computational Mathematics
Keywords: American basket options The curse of dimensionality Analytical approximation method Sum Least Squares Monte Carlo Simulation
CLC: F224
Type: Master's thesis
Year: 2008
Downloads: 68
Quote: 0
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Abstract


Basket options based on a portfolio of derivative products, the weighted average of its price will depend on the assets in the underlying portfolio. In order to meet the demand for risk diversification, in theory, can be in any portfolio as the underlying basket options. This paper is focused on the standard American basket call option. The so-called specification basket options need to meet two basic assumptions: risk-free interest rate is constant, followed by the underlying asset portfolio in the assets of the same nature (assets involved are stock assets). For dividend American call option, due to its early implementation characteristics, can not be like a European option closed form solution, often using the lattice method and Monte Carlo simulation (the Monte Carlo Method) for its pricing . These two types of methods have a common limitation is the algorithm complexity grows exponentially with the increase of the dimension of the underlying asset portfolio, the so-called \This research work around this issue. In order to clarify the work done by the system, in the first chapter introduces the research background and research status of basket options. In the second chapter, a simple statement of the basis of the mathematical theory of option pricing American basket. Approximation Method, AAM). In the fourth chapter, for application Longstaff and Schwartz least squares Monte Carlo simulation method (Least squares Monte Carlo simulation, LSMC) option pricing American basket fitting parameters with the underlying assets the dimension increased exponentially increase Finally, in Chapter Chapter Chapter numerical experiments, to obtain better results.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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