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|Title:||Valuation of forward start options under affine jump-diffusion models|
|Authors:||Nunes, J. P. V.|
Alcaria, T. R. V.
|Keywords:||Forward start options|
Stochastic volatility and interest rates
Discrete Fourier transform
|Publisher:||Routledge/Taylor and Francis|
|Abstract:||Under the general affine jump-diffusion framework of Duffie et al. [Econometrica, 2000, 68, 1343–1376], this paper proposes an alternative pricing methodology for European-style forward start options that does not require any parallel optimization routine to ensure square integrability. Therefore, the proposed methodology is shown to possess a better accuracy–efficiency trade-off than the usual and more general approach initiated by Hong [Forward Smile and Derivative Pricing. Working paper, UBS, 2004] that is based on the knowledge of the forward characteristic function. Explicit pricing solutions are also offered under the nested jump-diffusion setting proposed by Bakshi et al. [J. Finance, 1997, 52, 2003–2049], which accommodates stochastic volatility and stochastic interest rates, and different integration schemes are numerically tested.|
|Appears in Collections:||BRU-RI - Artigos em revistas científicas internacionais com arbitragem científica|
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