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Document type:
Zeitschriftenaufsatz 
Author(s):
Escobar, M.; Krause, D.; Zagst, R. 
Title:
Stochastic Covariance and Dimension Reduction in the Pricing of Basket Options 
Abstract:
This paper presents a tailor-made method for dimension reduction aimed at approximating the price of basket options in the context of stochastic volatility and stochastic correlation. The methodology is built on a modification to the Principal Component Stochastic Volatility (PCSV) model, a stochastic covariance model that accounts for most stylized facts in prices. The method to reduce dimension is first derived theoretically. Afterwards the results are applied to a multivariate lognormal conte...    »
 
Keywords:
Principal Components, Basket Options, Stochastic Covariance 
Journal title:
working paper, submitted for publication 
Year:
2014 
Reviewed:
nein 
Language:
en 
TUM Institution:
Lehrstuhl für Finanzmathematik 
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