Some Remarks on Two - Asset Options Pricing and Stochastic Dependence of Asset Prices
Posted: 26 Nov 2007
In this short note, we consider some problems of two - asset options pricing. In particular, we investigate the relationship between options prices and the 'correlation' parameter in the Black - Scholes model. Then, we consider the general case in the framework of the copula construction of risk - neutral distributions. This extension involves results on the supermodular order applied to the Feynman - Kac representation. We show that it could be viewed as a generalization of a maximum principle for parabolic PDE.
Keywords: Copulas, two-asset options, Spread, Basket, Min, Max, Best Of, Worst Of, supermodular order, concordance order, Fréchet bounds, Feynman-Kac representation, maximum principle, parabolic PDE
JEL Classification: G00
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