Testing the Closed-Form Spread Option Pricing Formula Based on Gauss-Hermite Quadrature for a Jump-Diffusion Model

被引：0

作者：

Lin, Xenos Chang-Shuo ^{[1
]}

Miao, Daniel Wei-Chung ^{[2
]}

Chang, Emma En-Tze ^{[3
]}

机构：

[1] Aletheia Univ, Accounting Informat, New Taipei, Taiwan

[2] Natl Taiwan Univ Sci & Technol, Grad Inst Finance, Taipei, Taiwan

[3] Yuanta Commercial Bank, Financial Prod Dept, Taipei, Taiwan

来源：

COMPUTATIONAL ECONOMICS | 2024年 / 64卷 / 05期

关键词：

Spread option; Jump-diffusion model; Closed-form pricing formula; Gauss-Hermite quadrature (GHQ); APPROXIMATIONS;

D O I：

10.1007/s10614-023-10468-2

中图分类号：

F [经济];

学科分类号：

02 ;

摘要：

In this paper we develop a closed-form spread option pricing formula based on Gauss-Hermite quadrature (GHQ) and show that the proposed method is a competitive method for the Black-Scholes model and is best-suited for the jump-diffusion model. The GHQ method turns the integral of spread option pricing formula into a summation of call option pricing formulas with adjusted parameters, and therefore the final formula remains in closed-form which ensures its computational advantage. Under the basic Black-Scholes model, the proposed GHQ formula provides equally nice accuracy compared to the best-performing LDZ formula in the literature. But for the extended jump-diffusion model, the LDZ formula sees a significant loss of accuracy due to the multi-layered summation, whereas the GHQ formula is still able to achieve very high accuracy at only slightly increased computing costs. Various closed-form formulas are tested in our numerical analysis which demonstrates that the proposed GHQ formula is the most recommended for pricing spread options under the jump-diffusion model.

引用

页码：2879 / 2908

页数：30