TY - GEN
T1 - Valuation of Basket Options Accommodating Assets’ Correlation
AU - Putri, Endah R.M.
AU - Hakam, Amirul
AU - Pratiwi, Ni Made D.
N1 - Publisher Copyright:
© The Author(s), under exclusive license to Springer Nature Switzerland AG 2025.
PY - 2025
Y1 - 2025
N2 - Basket options have multiple underlying assets which makes these options more complicated. The simplest form of options assumes that there is no correlation among assets. The presence of correlation increases the complexity of the model and also the solution. In this paper, we present valuations of the options using homotopy perturbation methods (HPM) and finite difference methods (FDM). We compare the analytic approximation method and numerical methods with the analytical solutions. We found that the HPMs provide better solutions than the numerical methods. The presence of correlation affect the price of basket options as the positive correlation will lead to higher volatility and higher price. On the other hand, the negative correlation results in the lower volatility and the price due to the offsetting profits between the loss and the gain of the underlying assets.
AB - Basket options have multiple underlying assets which makes these options more complicated. The simplest form of options assumes that there is no correlation among assets. The presence of correlation increases the complexity of the model and also the solution. In this paper, we present valuations of the options using homotopy perturbation methods (HPM) and finite difference methods (FDM). We compare the analytic approximation method and numerical methods with the analytical solutions. We found that the HPMs provide better solutions than the numerical methods. The presence of correlation affect the price of basket options as the positive correlation will lead to higher volatility and higher price. On the other hand, the negative correlation results in the lower volatility and the price due to the offsetting profits between the loss and the gain of the underlying assets.
KW - Finite difference methods
KW - Homotopy perturbation methods
KW - Multi assets
KW - basket options
UR - https://www.scopus.com/pages/publications/105007503886
U2 - 10.1007/978-3-031-85926-7_14
DO - 10.1007/978-3-031-85926-7_14
M3 - Conference contribution
AN - SCOPUS:105007503886
SN - 9783031859250
T3 - Springer Proceedings in Mathematics and Statistics
SP - 195
EP - 209
BT - Mathematics for Sustainable Industry - ISMI 2024
A2 - Embong, Ahmad Fadillah
A2 - Zainuddin, Zaitul Marlizawati
A2 - Shabri, Ani
A2 - Yussof, Fatin Nadiah Mohamed
PB - Springer
T2 - 5th International Seminar on Mathematics in Industry, ISMI 2024
Y2 - 9 September 2024 through 11 September 2024
ER -