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Pricing multi-asset options in exponential levy models
This dissertation looks at implementing exponential Levy models whereby the un- ´ derlyings are driven by Levy processes, which are able to account for stylised facts ´ that traditional models do not, in order to price basket options more efficiently. In particular, two exponential Levy models are i...
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| Format: | Thesis |
| Language: | English |
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African Institute of Financial Markets and Risk Management
2020
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| _version_ | 1867613383538245632 |
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| access_status_str | Open Access |
| author | Endekovski, Jessica |
| author2 | Ouwehand, Peter |
| author_browse | Endekovski, Jessica Ouwehand, Peter |
| author_facet | Ouwehand, Peter Endekovski, Jessica |
| author_sort | Endekovski, Jessica |
| collection | Thesis |
| description | This dissertation looks at implementing exponential Levy models whereby the un- ´ derlyings are driven by Levy processes, which are able to account for stylised facts ´ that traditional models do not, in order to price basket options more efficiently. In particular, two exponential Levy models are implemented and tested: the multi- ´ variate Variance Gamma (VG) model and the multivariate normal inverse Gaussian (NIG) model. Both models are calibrated to real market data and then used to price basket options, where the underlyings are the constituents of the KBW Bank Index. Two pricing methods are also compared: a closed-form (analytical) approximation of the price, derived by Linders and Stassen (2016) and the standard Monte Carlo method. The convergence of the analytical approximation to Monte Carlo prices was found to improve as the time to maturity of the option increased. In comparison to real market data, the multivariate NIG model was able to fit the data more accurately for shorter maturities and the multivariate VG model for longer maturities. However, when looking at Monte Carlo prices, the multivariate VG model was found to outperform the results of the multivariate NIG model, as it was able to converge to Monte Carlo prices to a greater degree. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/31437 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:35:16.857Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2020 |
| publishDateRange | 2020 |
| publishDateSort | 2020 |
| publisher | African Institute of Financial Markets and Risk Management |
| publisherStr | African Institute of Financial Markets and Risk Management |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/31437 Pricing multi-asset options in exponential levy models Endekovski, Jessica Ouwehand, Peter Mathematical Finance This dissertation looks at implementing exponential Levy models whereby the un- ´ derlyings are driven by Levy processes, which are able to account for stylised facts ´ that traditional models do not, in order to price basket options more efficiently. In particular, two exponential Levy models are implemented and tested: the multi- ´ variate Variance Gamma (VG) model and the multivariate normal inverse Gaussian (NIG) model. Both models are calibrated to real market data and then used to price basket options, where the underlyings are the constituents of the KBW Bank Index. Two pricing methods are also compared: a closed-form (analytical) approximation of the price, derived by Linders and Stassen (2016) and the standard Monte Carlo method. The convergence of the analytical approximation to Monte Carlo prices was found to improve as the time to maturity of the option increased. In comparison to real market data, the multivariate NIG model was able to fit the data more accurately for shorter maturities and the multivariate VG model for longer maturities. However, when looking at Monte Carlo prices, the multivariate VG model was found to outperform the results of the multivariate NIG model, as it was able to converge to Monte Carlo prices to a greater degree. 2020-03-02T11:51:29Z 2020-03-02T11:51:29Z 2019 2020-03-02T09:46:16Z Master Thesis Masters MPhil http://hdl.handle.net/11427/31437 eng application/pdf African Institute of Financial Markets and Risk Management Faculty of Commerce |
| spellingShingle | Mathematical Finance Endekovski, Jessica Pricing multi-asset options in exponential levy models |
| thesis_degree_str | Master's |
| title | Pricing multi-asset options in exponential levy models |
| title_full | Pricing multi-asset options in exponential levy models |
| title_fullStr | Pricing multi-asset options in exponential levy models |
| title_full_unstemmed | Pricing multi-asset options in exponential levy models |
| title_short | Pricing multi-asset options in exponential levy models |
| title_sort | pricing multi asset options in exponential levy models |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/31437 |
| work_keys_str_mv | AT endekovskijessica pricingmultiassetoptionsinexponentiallevymodels |