Bivariate Options Pricing with Copula-GARCH Model- Simulation Analysis
Date Issued
2009
Date
2009
Author(s)
Yu, Ming-Han
Abstract
Bivariate option is the contingent claims derives from a pair of underlying assets. The underlying assets can be equity, commodities, foreign exchange rate, interest rate or any index with quotations. In this paper, we present a copula-GARCH model and the Monte Carlo simulation method base on the model. We examine the pricing result of three kinds of bivariate options - digital, rainbow and spread option, in many different cases and find that the choosing of pricing copula may cause a significant difference of the pricing result. Furthermore, the pricing result of rainbow option is most sensitive to the choosing of copulas in the three kinds of bivariate options.
Subjects
Bivariate Option
Copula
Dependent Structure
GARCH
Monte Carlo
Type
thesis
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