A General Closed Form Approximation Formula for Pricing and Hedging Multi-Asset Spread Options

2015 ◽  
Author(s):  
Tommaso Pellegrino
Keyword(s):  
Closed Form ◽  
Approximation Formula ◽  
Spread Options ◽  
Closed Form Approximation

ON SPREAD OPTION PRICING USING TWO-DIMENSIONAL FOURIER TRANSFORM

2019 ◽  
Vol 22 (05) ◽  
pp. 1950023
Author(s):  
MESIAS ALFEUS ◽  
ERIK SCHLÖGL
Keyword(s):  
Fourier Transform ◽  
Option Pricing ◽  
Closed Form ◽  
Stochastic Volatility Model ◽  
Approximation Formula ◽  
Two Dimensional ◽  
Spread Options ◽  
Variance Gamma Process ◽  
Volatility Model ◽  
Spread Option

Spread options are multi-asset options with payoffs dependent on the difference of two underlying financial variables. In most cases, analytically closed form solutions for pricing such payoffs are not available, and the application of numerical pricing methods turns out to be nontrivial. We consider several such nontrivial cases and explore the performance of the highly efficient numerical technique of Hurd & Zhou[(2010) A Fourier transform method for spread option pricing, SIAM J. Financial Math. 1(1), 142–157], comparing this with Monte Carlo simulation and the lower bound approximation formula of Caldana & Fusai[(2013) A general closed-form spread option pricing formula, Journal of Banking & Finance 37, 4893–4906]. We show that the former is in essence an application of the two-dimensional Parseval’s Identity. As application examples, we price spread options in a model where asset prices are driven by a multivariate normal inverse Gaussian (NIG) process, in a three-factor stochastic volatility model, as well as in examples of models driven by other popular multivariate Lévy processes such as the variance Gamma process, and discuss the price sensitivity with respect to volatility. We also consider examples in the fixed-income market, specifically, on cross-currency interest rate spreads and on LIBOR/OIS spreads.

Closed Form Approximation of Swap Exposures

2013 ◽  
Author(s):  
Heikki Sepppll ◽  
Ser-Huang Poon ◽  
Thomas Schrrder
Keyword(s):  
Closed Form ◽  
Closed Form Approximation

Economic Capital Modeling Closed Form Approximation for Real-Time Applications

2014 ◽  
Author(s):  
Thomas Ribarits ◽  
Axel Clement ◽  
Heikki Sepppll ◽  
Hua Bai ◽  
Ser-Huang Poon
Keyword(s):  
Closed Form ◽  
Real Time ◽  
Economic Capital ◽  
Real Time Applications ◽  
Closed Form Approximation

scholarly journals A Closed-Form Approximation to the Distribution for the Sum of Independent Non-identically Generalized Gamma Variates and Applications

2021 ◽  
Vol 8 (1) ◽  
pp. 33-44
Author(s):  
Toufik Chaayra ◽  
Hussain Ben-azza ◽  
Faissal El Bouanani
Keyword(s):  
Closed Form ◽  
Fading Channels ◽  
Performance Metrics ◽  
Approximate Expression ◽  
Maximal Ratio Combining ◽  
Generalized Gamma ◽  
The Moment ◽  
Probability Density Function Pdf ◽  
Closed Form Approximation ◽  
Fox’S H Function

Evaluating the sum of independent and not necessarily identically distributed (i.n.i.d) random variables (RVs) is essential to study different variables linked to various scientific fields, particularly, in wireless communication channels. However, it is difficult to evaluate the distribution of this sum when the number of RVs increases. Consequently, the complex contour integral will be difficult to determine. Considering this issue, a more accurate approximation of the distribution function is required. By assuming the probability density function (PDF) of a generalized gamma (GG) RV evaluated in terms of a proper subset H1,0 1,1 class of Fox’s H-function (FHF) and the moment-based approximation to estimate the FHF parameters, a closed-form tight approximate expression for the distribution of the sum of i.n.i.d GG RVs and a sufficient condition for the convergence are investigated. The proposed approximate may be an analytical useful tool for analyzing the performance of certain numbers branch maximal-ratio combining receivers subject to GG fading channels. Hence, various closed-form performance metrics are derived and examined in terms of FHF. Numerical simulations are carried out to illustrate the theoretical results.

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