Quanto option pricing in the parsimonious Heston model
- In this work we use the Parsimonious Multi–Asset Heston model recently developed in [Dimitroff et al., 2009] at Fraunhofer ITWM, Department Financial Mathematics, Kaiserslautern (Germany) and apply it to Quanto options. We give a summary of the model and its calibration scheme. A suitable transformation of the Quanto option payoff is explained and used to price Quantos within the new framework. Simulated prices are given and compared to market prices and Black–Scholes prices. We find that the new approach underprices the chosen options, but gives better results than the Black–Scholes approach, which is prevailing in the literature on Quanto options.
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| Author: | G. Dimitroff, A. Szimayer, A. Wagner |
|---|---|
| URN: | urn:nbn:de:hbz:386-kluedo-16317 |
| Series (Serial Number): | Berichte des Fraunhofer-Instituts für Techno- und Wirtschaftsmathematik (ITWM Report) (174) |
| Document Type: | Report |
| Language of publication: | English |
| Year of Completion: | 2009 |
| Year of first Publication: | 2009 |
| Publishing Institution: | Fraunhofer-Institut für Techno- und Wirtschaftsmathematik |
| Date of the Publication (Server): | 2009/11/30 |
| GND Keyword: | Parsimonious Heston Model; Quanto option; Black–Scholes approach |
| Faculties / Organisational entities: | Fraunhofer (ITWM) |
| DDC-Cassification: | 5 Naturwissenschaften und Mathematik / 510 Mathematik |
| Licence (German): |  Standard gemäß KLUEDO-Leitlinien vor dem 27.05.2011 |