Pricing Basket Spread Option Under the Correlated Skew Brownian Motions

ABSTRACT In this article, we propose synthetic analytical approximate pricing formulas for basket and basket spread options within a multidimensional correlated skew Brownian motion framework. For basket options, we derive two analytical approximate pricing formulas by utilizing the partial exact approximation, the moment matching method and convex bounds approximation together and achieve accurate and analytical approximations. For basket spread options, we derive a lower bound approximation using the Bjerksund–Stensland‐type approach. Numerical examples demonstrate superior performance with consistent robustness and high precision of our formulas, remarkably maintaining excellent performance for high‐dimensional options. We also note that these approximate pricing formulas can serve as powerful control variates for the variance reduction of Monte Carlo simulations.

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Publication Details

Journal
Applied Stochastic Models in Business and Industry
Published
2025-08-31
DOI
https://doi.org/10.1002/asmb.70040
Primary Topic
Stochastic processes and financial applications
Type
article
Field-Weighted Citation Impact
0.00

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article

Pricing Basket Spread Option Under the Correlated Skew Brownian Motions

Xingye Yue, Jing Yao, Qifeng Zhong
Applied Stochastic Models in Business and Industry
Stochastic processes and financial applications
article

Pricing Basket Spread Option Under the Correlated Skew Brownian Motions

Xingye Yue, Jing Yao, Qifeng Zhong
article en

Abstract

ABSTRACT In this article, we propose synthetic analytical approximate pricing formulas for basket and basket spread options within a multidimensional correlated skew Brownian motion framework. For basket options, we derive two analytical approximate pricing formulas by utilizing the partial exact approximation, the moment matching method and convex bounds approximation together and achieve accurate and analytical approximations. For basket spread options, we derive a lower bound approximation using the Bjerksund–Stensland‐type approach. Numerical examples demonstrate superior performance with consistent robustness and high precision of our formulas, remarkably maintaining excellent performance for high‐dimensional options. We also note that these approximate pricing formulas can serve as powerful control variates for the variance reduction of Monte Carlo simulations.

Applied Stochastic Models in Business and IndustryVol. 41(5)
Soochow University (CN)
National Natural Science Foundation of China
Openalex Percentile: Top 70%
Stochastic processes and financial applications
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Pricing Basket Spread Option Under the Correlated Skew Brownian Motions — Xingye Yue, Jing Yao, et al. · Applied Stochastic Models in Business and Industry (2025) | TGRS Research Map | TGRS