An Analytically Tractable Model for Pricing Multiasset Options with Correlated Jump-Diffusion Equity Processes and a Two-Factor Stochastic Yield Curve
Table 1
Values of put options on the minimum of two assets.
3-month expiry put option on minimum
3-month expiry put option on minimum
1-year expiry put option on minimum
1-year expiry put option on minimum
Model 1: Black-Scholes
9.304886727
3.630237975
17.0518359
10.66664224
Model 2: no jumps, stochastic interest rate
9.62905761
2.87924378
19.1872084
11.5275656
Model 3: low intensity jumps, constant interest rate
11.2923396
4.64155701
21.0275563
13.5964336
Model 4: low intensity jumps, stochastic interest rate
10.4286542
3.61484021
20.6860149
12.9592418
Model 5: high intensity jumps, constant interest rate
11.8892729
5.15613322
22.3691619
14.8593002
Model 6: high intensity jumps, stochastic interest rate
11.0618998
4.16206372
22.0902324
14.307958
All values other than Black-Scholes were computed by means of Formula 1 with the following inputs: , , , , , , , , , , , , and . The “constant interest rate” setting is defined by taking an interest rate equal to 3%. The “stochastic interest rate” setting is defined by taking , , , , and . The “low intensity jumps” setting is defined by taking , , and . The “high intensity jumps” setting is defined by taking , , and .
