"On Exotic contracts with payoff defined by a weighted sum of correlated asset prices"
We explore the development of moment-matching based approximations for the price of options written on a weighted sum of correlated asset prices in a Lévy process framework. This class of contracts includes (amongst the others) the Asian option, the Basket option and the Asian Basket option as special cases. The proposed procedure is an extension to the case of a Lévy economy of the moment matching method developed by Turnbull and Wakeman (1991), Levy (1992) and Gentle (1993) for the pricing of this class of path-dependent options in the traditional Black-Scholes setting. The accuracy of the approximation is analysed against RQMC estimates; testing against alternative pricing techniques is explored as well. We conclude with some considerations on the practical use of these numerical approximations in the financial industry.
The seminar will take place in E-building in room E1.17, see below for the address.
