Title: Pricing multiasset equity options: how relevant is the dependence function?
Authors: BEDENDO MasciaCAMPOLONGO FrancescaJOOSSENS ElisabethSAITA Francesco
Citation: JOURNAL OF BANKING & FINANCE vol. 34 no. 4 p. 788-801
Publisher: ELSEVIER SCIENCE BV
Publication Year: 2010
JRC N°: JRC49785
ISSN: 0378-4266
URI: http://www.elsevier.com/locate/jbf
http://publications.jrc.ec.europa.eu/repository/handle/JRC49785
DOI: 10.1016/j.jbankfin.2009.09.009
Type: Articles in Journals
Abstract: In this paper we test how different choices for the dependence function can affect the prices of a set of multiasset equity options. We conduct the analysis for various five-dimensional baskets of UK shares, and a wide range of payoffs for the multiasset options, consistent with the instruments traded on the market. We also test the relevance of the dependence specification over both volatile and quiet market scenarios. Interestingly, we find that, in most circumstances, the choice of a dependence structure richer than the standard linear correlation does not seem to affect option prices significantly. However, the dependence function becomes more relevant in particularly volatile market conditions, as well as for some payoff structures.
JRC Institute:Institute for the Protection and Security of the Citizen

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