Author/Authors :
Taherinasab, Yasser Department of Applied Mathematics - Ferdowsi University of Mashhad, Mashhad, Iran , Soheili, Ali Reza Department of applied mathematics Ferdowsi university of Mashhad Mashhad and The Center of Excellence on Modeling and Control Systems - Ferdowsi University of Mashhad, Iran , Amini, Mohammad Department of Statistics - Ferdowsi University of Mashhad, Mashhad, Iran
Abstract :
We extend the method presented by Xu and Zheng (Int. J. Theor. Appl. Finance 17 (2014) 21--36) for the general case. We develop a numerical-analytic formula for pricing nonlinear basket options with jump-diffusion model. We derive an easily computed method by using the asymptotic expansion to find the approximate value of the lower bound of nonlinear European basket call prices since a nonlinear basket option is generally not closed-form. We use Split Step Backward Euler and Compensated Split Step Backward Euler methods with Monte Carlo simulation to check the validity of the presented method.
Keywords :
Basket option , nonlinear stochastic differential equations , Poisson process , Split Step Backward Euler method
