A general continuous time Markov chain approximation for multi-asset option pricing with systems of correlated diffusions

作者：

Highlights：

• This paper develops a general methodology for modeling and pricing financial derivatives which depend on systems of stochastic diffusion processes.

• Weak convergence of the approximation is demonstrated, with second order convergence in space.

• Numerical experiments demonstrate the accuracy and efficiency of the method for various European and early-exercise options in two and three dimensions

摘要

•This paper develops a general methodology for modeling and pricing financial derivatives which depend on systems of stochastic diffusion processes.•Weak convergence of the approximation is demonstrated, with second order convergence in space.•Numerical experiments demonstrate the accuracy and efficiency of the method for various European and early-exercise options in two and three dimensions

论文关键词：Options pricing,CTMC,Markov chain,Diffusion,Spread options,Rainbow options,Basket options,Multi asset,Exotic option,PDE

论文评审过程：Received 11 November 2019, Revised 6 May 2020, Accepted 14 June 2020, Available online 25 June 2020, Version of Record 25 June 2020.

论文官网地址：https://doi.org/10.1016/j.amc.2020.125472