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Contribution Details
| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | A Generalized Bachelier Formula for Pricing Basket and Spread Options |
| Organization Unit | |
| Authors |
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| Language |
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| Institution | University of Zurich |
| Series Name | SSRN |
| Number | 2698307 |
| ISSN | 1556-5068 |
| Number of Pages | 19 |
| Date | 2015 |
| Abstract Text | In this paper we propose a closed-form pricing formula for European basket and spread options. Our approach is based on approximating the risk-neutral probability density function of the terminal value of the basket using a Gauss-Hermite series expansion around the Gaussian density. The new method is quite general as it can be applied for a basket with a large number of assets and for all dynamics where the joint characteristic function of log-returns is known in closed form. We provide a simulation study to show the accuracy and the speed of our methodology. |
| Free access at | Official URL |
| Official URL | http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2698307 |
| Other Identification Number | merlin-id:13051 |
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