In this paper we derive an easily computed approximation of Rogers and Shi's lower bound for a local volatility jump-diffusion model and then use it to approximate European basket option values . If the local volatility function is time independent then there is a closed-form expression for the approximation. Numerical tests show that the lower bound approximation is fast and accurate in comparison with the Monte Carlo method, the partial-exact approximation method and the asymptotic expansion method .
In this paper we derive an easily computed approximation to European basket call prices for a local volatility jump-diffusion model . We apply the asymptotic expansion method to find the approximate value of the lower bound of European basket call prices . If the local volatility function is time independent then there is a closed-form expression for the approximation. Numerical tests show that the suggested approximation is fast and accurate in comparison with the Monte Carlo and other approximation methods in the literature .
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of Rogers and Shi's lower bound
to European basket call prices
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and then use it to approximate European basket option values
. We apply the asymptotic expansion method to find the approximate value of the lower bound of European basket call prices
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lower bound
suggested
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method, the partial-exact approximation method and the asymptotic expansion method
and other approximation methods in the literature