Artigo em revista científica Q1
Valuation of forward start options under affine jump-diffusion models
João Nunes (Nunes, J. P. V.); Tiago Ramalho Viegas Alcaria (Alcaria, T. R. V.);
Título Revista
Quantitative Finance
Reino Unido
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Under the general affine jump-diffusion framework of Duffie et al. [Econometrica, 2000, 68, 1343–1376], this paper proposes an alternative pricing methodology for European-style forward start options that does not require any parallel optimization routine to ensure square integrability. Therefore, the proposed methodology is shown to possess a better accuracy–efficiency trade-off than the usual and more general approach initiated by Hong [Forward Smile and Derivative Pricing. Working paper, UBS, 2004] that is based on the knowledge of the forward characteristic function. Explicit pricing solutions are also offered under the nested jump-diffusion setting proposed by Bakshi et al. [J. Finance, 1997, 52, 2003–2049], which accommodates stochastic volatility and stochastic interest rates, and different integration schemes are numerically tested.
Forward start options,Stochastic volatility and interest rates,Jump-diffusion processes,Discrete Fourier transform,Gaussian quadratures,COS approximation
  • Matemáticas - Ciências Naturais
  • Economia e Gestão - Ciências Sociais
  • Sociologia - Ciências Sociais
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UID/GES/00315/2013 Fundação para a Ciência e a Tecnologia
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