Pricing Exchange Option Based on Copulas by MCMC Algorithm
Wen Su
TL;DR
This paper introduces a method for pricing exchange options using copulas and MCMC algorithms, comparing different models and analyzing their pricing accuracy.
Contribution
It presents a novel application of copulas with MCMC for exchange option pricing and compares various copula models' effectiveness.
Findings
Most copula models yield similar prices except Gumbel copula.
Gumbel copula provides different pricing estimates.
The methodology integrates risk-neutral pricing with copula and MCMC techniques.
Abstract
This paper focus on pricing exchange option based on copulas by MCMC algorithm. Initially, we introduce the methodologies concerned about risk-netural pricing, copulas and MCMC algorithm. After the basic knowledge, we compare the option prices given by different models, the results show except Gumbel copula, the other model provide similar estimation.
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Taxonomy
TopicsStochastic processes and financial applications · Risk and Portfolio Optimization · Analysis of environmental and stochastic processes