Paper #1347

Títol:

On the closed-form approximation of short-time random strike options

Autors:

Elisa Alòs i Jorge A. León

Data:

Maig 2013

Resum:

In this paper we propose a general technique to develop first and second order closed-form approximation formulas for short-time options with random strikes. Our method is based on Malliavin calculus techniques and allows us to obtain simple closed-form approximation formulas depending on the derivative operator. The numerical analysis shows that these formulas are extremely accurate and improve some previous approaches on two-assets and three-assets spread options as Kirk's formula or the decomposition mehod presented in Al�s, Eydeland and Laurence (2011).

Paraules clau:

Spread options, Kirk's formula, Malliavin calculus, derivative operator in the Malliavin calculus sense, Skorohod integral.

Codis JEL:

G12, G13

Àrea de Recerca:

Estadística, Econometria i Mètodes Quantitatius

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