Bermudan Option Valuation Under State-Dependent Models

A. Borovykh, A. Pascucci, C.W. Oosterlee

Research output: Chapter in Book/Report/Conference proceedingConference contributionAcademicpeer-review

Abstract

We consider a defaultable asset whose risk-neutral pricing dynamics are described by an exponential Lévy-type martingale. This class of models allows for a local volatility, local default intensity and a locally dependent Lévy measure. We present a pricing method for Bermudan options based on an analytical approximation of the characteristic function combined with the COS method. Due to a special form of the obtained characteristic function the price can be computed using a fast Fourier transform-based algorithm resulting in a fast and accurate calculation.
Original languageEnglish
Title of host publicationActuarial Sciences and Quantitative Finance
Subtitle of host publicationICASQF2016, Cartagena, Colombia, June 2016
EditorsJaime A. Londoño, José Garrido, Monique Jeanblanc
Place of PublicationCham
PublisherSpringer
Pages127–138
Edition1
ISBN (Electronic)978-3-319-66536-8
ISBN (Print)978-3-319-66534-4
DOIs
Publication statusPublished - 25 Oct 2017
Externally publishedYes

Publication series

NameSpringer Proceedings in Mathematics & Statistics
PublisherSpringer
Volume214
ISSN (Print)2194-1009
ISSN (Electronic)2194-1017

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