Work

The Numerical Simulation of Quanto Option Prices Using Bayesian Statistical Methods

Year: 2019

Type: preprint

Abstract: In the paper, the pricing of Quanto options is studied, where the underlying foreign asset and the exchange rate are correlated with each other. Firstly, we adopt Bayesian methods to estimate unknown parameters entering the pricing formula of Quanto options, including the volatility of stock, the volatility of exchange rate and the correlation. Secondly, we compute and predict prices of different four types of Quanto options based on Bayesian posterior prediction techniques and Monte Carlo methods. Finally, we provide numerical simulations to demonstrate the advantage of Bayesian method used in this paper comparing with some other existing methods. This paper is a new application of the Bayesian methods in the pricing of multi-asset options.

Source: arXiv (Cornell University)

DOI: 10.48550/arxiv.1910.04075

Authors: Lin, Lisha, Li, Yaqiong, Gao, Rui, Wu, Jianhong

Institutions: Hunan University, Shandong University of Finance and Economics, York University

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funders: National Natural Science Foundation of China, China Scholarship Council, Natural Sciences and Engineering Research Council of Canada

Awards: G3635456475, G999145028

OpenAlex ID: W2979313301

Cites: 27

Cited by: 2

Related to: 10