A finite elements approach for spread contract valuation via associated two-dimensional PIDE

Olivares, Pablo; Ciro, Diaz

doi:10.1007/s40314-022-02149-x

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2023

2024

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Cited by 2 publications

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“…The calibration of the parameters, albeit a critical issue, is beyond the scope of the paper. See Pablo and Ciro (2023) for the use of a Generalized Method of Moments matching empirical and theoretical moments of both assets under a similar model.…”

Section: Numerical Resultsmentioning

confidence: 99%

Valuing Exchange Options under an Ornstein-Uhlenbeck Covariance Model

Villamor

Olivares

2023

IJFS

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In this paper we study the pricing of exchange options between two underlying assets whose dynamic show a stochastic correlation with random jumps. In particular, we consider a Ornstein-Uhlenbeck covariance model, with Levy Background Noise Processes driven by Inverse Gaussian subordinators. We use expansions in terms of Taylor polynomials and cubic splines to approximately compute the price of the derivative contract. Our findings show that the later approach provides an efficient way to compute the price when compared with a Monte Carlo method, while maintaining an equivalent degree of accuracy.

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Section: Numerical Resultsmentioning

confidence: 99%