Paper #1347

Título:

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

Autores:

Elisa Alòs y Jorge A. León

Fecha:

Mayo 2013

Resumen:

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).

Palabras clave:

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

Códigos JEL:

G12, G13

Área de investigación:

Estadística, Econometría y Métodos Cuantitativos

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