Journal of the Korean Society for Industrial and Applied Mathematics

Korean Society for Industrial and Applied Mathematics (한국산업응용수학회)
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FAST PRICING OF FOUR ASSET EQUITY-LINKED SECURITIES USING BROWNIAN BRIDGE

  • YOO, CHANGWOO (DEPARTMENT OF FINANCIAL ENGINEERING, KOREA UNIVERSITY) ;
  • CHOI, YONGHO (DEPARTMENT OF MATHEMATICS AND BIG DATA, DAEGU UNIVERSITY) ;
  • KIM, SANGKWON (DEPARTMENT OF MATHEMATICS, KOREA UNIVERSITY) ;
  • KWAK, SOOBIN (DEPARTMENT OF MATHEMATICS, KOREA UNIVERSITY) ;
  • HWANG, YOUNGJIN (DEPARTMENT OF MATHEMATICS, KOREA UNIVERSITY) ;
  • KIM, JUNSEOK (DEPARTMENT OF MATHEMATICS, KOREA UNIVERSITY)
  • Received : 2021.04.22
  • Accepted : 2021.08.12
  • Published : 2021.09.25
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Abstract

In this study, we present a fast option pricing method for four asset equity-linked securities (ELS) using Brownian bridge. The proposed method is based on Monte Carlo simulation (MCS) and a Brownian bridge approach. Currently, three asset ELS is the most popular ELS among multi-asset ELSs. However, four asset ELS emerged as an alternative to three asset ELS under low interest rate environment to give higher coupon rate to investors. We describe in detail the computational solution algorithm for the four underlying asset step-down ELS. The numerical tests confirm the accuracy and speed of the method.

Keywords

Acknowledgement

The authors appreciate the reviewers for their constructive comments, which have improved the quality of this paper. The corresponding author (J.S. Kim) was supported by the Brain Korea 21 FOUR from the Ministry of Education of Korea.

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