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http://dx.doi.org/10.12941/jksiam.2021.25.082

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)
Publication Information
Journal of the Korean Society for Industrial and Applied Mathematics / v.25, no.3, 2021 , pp. 82-92 More about this Journal
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
Brownian bridge technique; MCS; ELS;
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