TY - JOUR
T1 - A note to enhance the BPW model for the pricing of basket and spread options
AU - Chang, Jui Jane
AU - Chen, Son Nan
AU - Wu, Ting Pin
PY - 2012/3
Y1 - 2012/3
N2 - Borovkova, Permana, and Weide [2007, BPW] proposed an accurate and versatile method to price general basket options (including spread options). In implementing the BPW model, a nonlinear system of three equations with three unknowns must be solved to estimate parameters. If we directly compute the system of equations via a computer, it takes about 2.3 seconds, which is not significantly shorter than the computing time (about 5.7 seconds) based on Monte Carlo simulation for pricing basket options. To relieve this somewhat time-consuming problem, this note provides an analytical method to solve this equation system. With our method, it takes almost no time, about 0.015 seconds, to price a basket option. Therefore, our parameter estimation method enhances the efficiency and tractability of the BPW model for end-users in the marketplace.
AB - Borovkova, Permana, and Weide [2007, BPW] proposed an accurate and versatile method to price general basket options (including spread options). In implementing the BPW model, a nonlinear system of three equations with three unknowns must be solved to estimate parameters. If we directly compute the system of equations via a computer, it takes about 2.3 seconds, which is not significantly shorter than the computing time (about 5.7 seconds) based on Monte Carlo simulation for pricing basket options. To relieve this somewhat time-consuming problem, this note provides an analytical method to solve this equation system. With our method, it takes almost no time, about 0.015 seconds, to price a basket option. Therefore, our parameter estimation method enhances the efficiency and tractability of the BPW model for end-users in the marketplace.
UR - http://www.scopus.com/inward/record.url?scp=84863246943&partnerID=8YFLogxK
U2 - 10.3905/jod.2012.19.3.077
DO - 10.3905/jod.2012.19.3.077
M3 - 期刊論文
AN - SCOPUS:84863246943
VL - 19
SP - 77
EP - 82
JO - Journal of Derivatives
JF - Journal of Derivatives
SN - 1074-1240
IS - 3
ER -