Title :
European Exchange Option Pricing in Exponential Lévy Model
Author :
Chen, Xu ; Wan, Jianping
Author_Institution :
Dept. of Math. & Comput., Hunan Normal Univ., Changsha, China
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;
Conference_Titel :
Artificial Intelligence and Computational Intelligence (AICI), 2010 International Conference on
Conference_Location :
Sanya
Print_ISBN :
978-1-4244-8432-4
DOI :
10.1109/AICI.2010.24
