WIAS Preprint No. 1855, (2013)

Asymptotics for at the money local vol basket options



Authors

  • Bayer, Christian
    ORCID: 0000-0002-9116-0039
  • Laurence, Peter

2010 Mathematics Subject Classification

  • 91G60 91G20 58J90

Keywords

  • Basket options, spread options, implied volatility, asymptotic formulas, heat kernel expansion

Abstract

We consider a basket or spread option on based on a multi-dimensional local volatility model. Bayer and Laurence [Comm. Pure. Appl. Math., to appear] derived highly accurate analytic formulas for prices and implied volatilities of such options when the options are not at the money. We now extend these results to the ATM case. Moreover, we also derive similar formulas for the local volatility of the basket.

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