Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/123759 
Year of Publication: 
2015
Series/Report no.: 
Bank of Canada Working Paper No. 2015-11
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Plain vanilla options have a single underlying asset and a single condition on the payoff at the expiration date. For this class of options, a well-known result of Duffie, Pan and Singleton (2000) shows how to invert the characteristic function to obtain a closed-form formula for their prices. However, multiple-asset and multiple-condition derivatives such as rainbow options cannot be priced within this framework. Utilizing inversion of the Fourier transform - and resorting to neither the Black-Scholes framework nor the affine models settings - the authors provide an analytical solution for options whose payoffs depend on two or more conditions. Numerical experiments based on the multiple-asset and multiple-condition derivatives are provided to illustrate the usefulness of the proposed approach.
Subjects: 
Asset pricing
JEL: 
G12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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