LOWER BOUND APPROXIMATION TO BASKET OPTION VALUES FOR LOCAL VOLATILITY JUMP-DIFFUSION MODELS*

摘要

In this paper, we derive an easily computed approximation to European basket call prices for a local volatility jump-diffusion model. We apply the asymptotic expansion method to find the approximate value of the lower -bound of European basket call prices. If the local volatility function is time independent then there is a closed-form expression for the approximation. Numerical tests show that the suggested approximation is fast and accurate in comparison with the Monte Carlo (MC) and other approximation methods in the literature.