Bounds on baskets option prices

 

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dc.contributor.advisor Polakow, Daniel en_ZA
dc.contributor.author De Swardt, N C en_ZA
dc.date.accessioned 2014-07-31T08:07:02Z
dc.date.available 2014-07-31T08:07:02Z
dc.date.issued 2005 en_ZA
dc.identifier.citation De Swardt, N. 2005. Bounds on baskets option prices. University of Cape Town. en_ZA
dc.identifier.uri http://hdl.handle.net/11427/4880
dc.description Includes bibliographical references (leaves 70-71).
dc.description.abstract The celebrated Black-Scholes option pricing model is unable to produce closed-form solutions for arithmetic basket options. This problem stems from the lack of an analitical form for the distribution of a sum of lognormal random variables. lVlarket participants commonly price basket options by assuming the basket follows lognormal dynamics, although it is known that this approximation performs poorly in some cicumstances. The problem of finding an analytical approximation to the sum of lognormally distributed random variables has been widely studied. In this dissertation we seek to draw these studies together and apply them in an option pricing setting. We propose some new option pricing formulae based on these approximations. In order to examine the utility of these new formulae and compare them to commonly used market approximations we present rigorous analytical bounds for the price of arithmetic basket options using the theory of comonotonicity. In this we follow the ideas in Deelstra et al. [7]. Additionally we provide an interval of hedge parameters (the Greeks). We carry out a numerical sensitivity analysis and identify circumstances under which the market approximation misprices basket options. en_ZA
dc.language.iso eng en_ZA
dc.subject.other Financial Mathematics en_ZA
dc.title Bounds on baskets option prices en_ZA
dc.type Thesis / Dissertation en_ZA
uct.type.publication Research en_ZA
uct.type.resource Thesis en_ZA
dc.publisher.institution University of Cape Town
dc.publisher.faculty Faculty of Science en_ZA
dc.publisher.department Department of Mathematics and Applied Mathematics en_ZA
dc.type.qualificationlevel Masters en_ZA
dc.type.qualificationname MSc en_ZA
uct.type.filetype Text
uct.type.filetype Image


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