Note on multidimensional Breeden-Litzenberger representation for state price densities

DOI10.1007/S11579-014-0113-5MaRDI QIDQ2452152zbMATHOpenAlexFDO

Authors Jarno Talponen, Lauri Viitasaari

Publication date 30 May 2014

Published in Mathematics and Financial Economics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1305.5963

zbMATH Keywords

basket optionsoption valuationrainbow optionsBreeden-Litzenberger representationoptions of multidimensional assetsstate price densities

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: In this note, we consider European options of type $h(X_T^1,X_T^2,ldots,X_T^n)$ depending on several underlying assets. We give a multidimensional version of the result of Breeden and Litzenberger cite{Breeden} on the relation between derivatives of the call price and the risk-neutral density of the underlying asset. The pricing measure is assumed to be absolutely continuous with respect to the Lebesgue measure on the state space.

Recommendations

• Spanning, valuation and options
• On the multidimensional Black-Scholes partial differential equation
• Analytical Approach to Value Options with State Variables of a Lévy System
• Multiasset derivatives and joint distributions of asset prices
• A new representation of the risk-neutral distribution and its applications

Cites work

• Mathematical methods for financial markets.
• Multi-asset stochastic local variance contracts
• Semiparametric modeling of implied volatility.
• Spanning, valuation and options

Cited in

(3)

• Improved robust price bounds for multi-asset derivatives under market-implied dependence information
• On certain representations of pricing functionals
• Pricing multivariate European equity option using Gaussians mixture distributions and EVT-based copulas

This page was built for publication: Note on multidimensional Breeden-Litzenberger representation for state price densities

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2452152)