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Diskussionspapiere - Hannover Economic Papers (HEP)

Worst Case Pricing of Rainbow Options

Autor: Topper, Jürgen
Nummer: 217, Oct 2001, pp. 12
JEL-Class: C63, G13

Options on two underlyings are a common exotic product in the equity and FX derivatives market. The value of these kinds of options depends on the correlation of the two underlyings. We will present a model to compute a lower bound for the price of this option. The model, represented by a non-linear parabolic PDE, is implemented with finite elements in order to demonstrate the results with several derivatives from the European market.

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