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Title: Valuation of exotic options in the framework of Levy processes

In this paper we explore a straightforward procedure to price derivatives by using the Monte Carlo approach when the underlying process is a jump-diffusion. We have compared the Black-Scholes model with one of its extensions that is the Merton model. The latter model is better in capturing the market’s phenomena and is comparative to stochastic volatility models in terms of pricing accuracy. We have presented simulations of asset paths and pricing of barrier options for both Geometric Brownian motion and exponential Levy processes as it is the concrete case of the Merton model. A desired level of accuracy is obtained with simple computer operations in MATLAB for efficient computational time.
Authors:
; ;  [1]
  1. Department of Mathematics and Physics, UFT-Plovdiv, bul. Maritza 26, 4002 Plovdiv (Bulgaria)
Publication Date:
OSTI Identifier:
22262771
Resource Type:
Journal Article
Resource Relation:
Journal Name: AIP Conference Proceedings; Journal Volume: 1570; Journal Issue: 1; Conference: AMEE 13: 39. international conference on applications of mathematics in engineering and economics, Sozopol (Bulgaria), 8-13 Jun 2013; Other Information: (c) 2013 AIP Publishing LLC; Country of input: International Atomic Energy Agency (IAEA)
Country of Publication:
United States
Language:
English
Subject:
97 MATHEMATICAL METHODS AND COMPUTING; ACCURACY; BROWNIAN MOVEMENT; CONCRETES; MONTE CARLO METHOD; SIMULATION; STOCHASTIC PROCESSES