Approximated moment-matching dynamics for basket-options simulation
نویسندگان
چکیده
The aim of this paper is to present two moment matching procedures for basketoptions pricing and to test its distributional approximations via distances on the space of probability densities, the Kullback-Leibler information (KLI) and the Hellinger distance (HD). We are interested in measuring the KLI and the HD between the real simulated basket terminal distribution and the distributions used for the approximation, both in the lognormal and shifted-lognormal families. We isolate influences of instantaneous volatilities and instantaneous correlations, in order to assess which configurations of these variables have a major impact on the KLI and HD and therefore on the quality of the approximation.
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