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Efficient pricing of European options on two underlying assets by frame duality. (English) Zbl 1465.91120
The authors consider the option pricing method of density projection (onto B-splines) by frame duality, previously applied to pricing European options on one underlying asset, and extend it to higher dimensions, especially two-dimensions in which some exotic options can be priced. The technique does not require an a-priori truncation of the integration range, and exhibits excellent performance compared with other state-of-the-art methods, particularly for fatter-tailed short maturity models. Numerical results on implementation of this method to price for popular two-assets options, under both the geometric Brownian motion and variance-gamma dynamics, demonstrate remarkable accuracy and robustness.

MSC:
 91G20 Derivative securities (option pricing, hedging, etc.) 60G51 Processes with independent increments; Lévy processes 91G60 Numerical methods (including Monte Carlo methods)
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