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The pricing of European options on two underlying assets with delays

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  • Lin, Lisha
  • Li, Yaqiong
  • Wu, Jing

Abstract

In the paper, the pricing of European options on two underlying assets with delays is discussed. By using the approach of equivalent martingale measure transformation, the market is proved to be complete. With exchange option as a particular example, we obtain the explicit pricing formula in a subinterval of option period. The robust Euler–Maruyama method is combined with the Monte Carlo simulation to compute exchange option prices within the whole option period. Numerical experiments indicate that there is an increasing possibility of the difference between the delayed and Black–Scholes option prices with the increase of delay.

Suggested Citation

  • Lin, Lisha & Li, Yaqiong & Wu, Jing, 2018. "The pricing of European options on two underlying assets with delays," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 495(C), pages 143-151.
    • Handle: RePEc:eee:phsmap:v:495:y:2018:i:c:p:143-151
    DOI: 10.1016/j.physa.2017.12.031
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    Cited by:

    1. Shafi, Khuram & Latif, Natasha & Shad, Shafqat Ali & Idrees, Zahra & Gulzar, Saqib, 2018. "Estimating option greeks under the stochastic volatility using simulation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 1288-1296.
    2. Ghafarian, Bahareh & Hanafizadeh, Payam & Qahi, Amir Hossein Mortazavi, 2018. "Applying Greek letters to robust option price modeling by binomial-tree," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 632-639.

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