European Exchange Option Pricing in Exponential Lévy Model

Author

Chen, Xu ; Wan, Jianping

Author_Institution

Dept. of Math. & Comput., Hunan Normal Univ., Changsha, China

Volume

1

fYear

2010

fDate

23-24 Oct. 2010

Firstpage

83

Lastpage

87

Abstract

In this article we apply two methods to price the exchange options in exponential Levy model, where the jump parts of two driving processes are assumed to have mapping relations. One method is pricing under the minimal entropy martingale measure(MEMM) of 2-dimensional market, and the other one is Margrabe´s method which has been examined to be correct for Black-Scholes model. We compare the results of two methods and find that Margrabe´s method is incorrect for exponential Levy model with jumps except special states of the model.

Keywords

exchange rates; exponential distribution; integro-differential equations; pricing; stochastic processes; 2-dimensional market; Black-Scholes model; European exchange option pricing; Margrabe method; exponential levy model; minimal entropy martingale measure; Correlation; Entropy; Equations; Europe; Finance; Mathematical model; Pricing; European exchange option pricing; partial integro-differential equations; the minimal entropy martingale measure;

fLanguage

English

Publisher

ieee

Conference_Titel

Artificial Intelligence and Computational Intelligence (AICI), 2010 International Conference on

Conference_Location

Sanya

Print_ISBN

978-1-4244-8432-4

Type

conf

DOI

10.1109/AICI.2010.24

Filename

5656606