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Basket Option Pricing under Jump Diffusion Models
Authors: Ali Safdari-Vaighani
Abstract:Pricing financial contracts on several underlying assets received more and more interest as a demand for complex derivatives. The option pricing under asset price involving jump diffusion processes leads to the partial integral differential equation (PIDEs), which is an extension of the Black-Scholes PDE with a new integral term. The aim of this paper is to show how basket option prices in the jump diffusion models, mainly on the Merton model, can be computed using RBF based approximation methods. For a test problem, the RBF-PU method is applied for numerical solution of partial integral differential equation arising from the two-asset European vanilla put options. The numerical result shows the accuracy and efficiency of the presented method.
Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1131169Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 625
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