Lognormal Moment Matching and Pricing of Basket Options
نویسنده
چکیده
In this paper we will approximate the sum of the margins from a two dimensional lognormal variable by moment matching with a one dimensional lognormal variable. We will look at different cases of correlation and volatility in the two dimensional variable to analyse the accuracy of the approximation. Basket options will be valuated based on the sum of two coupled lognormal assets and a univariate approximation to detect situations where the moment matching may be successfully applied in a financial market.
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