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分類番号: CARF-F-426
発表時期: 2017 11
タイトル: Pricing Average and Spread Options under Local-Stochastic Volatility Jump-Diffusion Models (Revised version of CARF-F-365 : Forthcoming in Mathematics of Operations Research)
著者: Kenichiro Shiraya, Akihiko Takahashi
Abstract:

This paper presents a new approximation formula for pricing multi-dimensional discretely monitored average options in a local-stochastic volatility (LSV) model with jumps by applying an asymptotic expansion technique. Moreover, it provides a justification of the approximation method with some asymptotic error estimates for general payoff functions. Particularly, our model includes local volatility functions and jump components in the underlying asset price as well as its volatility processes. To the best of our knowledge, the proposed approximation is the first one which achieves analytic approximations for the average option prices in this environment.
In numerical experiments, by employing several models, we provide approximate prices for the listed average and calendar spread options on the WTI futures based on the parameters through calibration to the listed (plain-vanilla) futures options prices. Then, we compare those with the CME settlement prices, which confirms the validity of the method.
Moreover, we show that the LSV with jumps model is able to replicate consistently and precisely listed futures option, calendar spread option and average option prices with common parameters.

ファイル(PDF): full paper
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