Date of Award
2011
Degree Type
Thesis
Degree Name
Master of Applied Science (MASc)
Department
Mathematics
First Advisor
Pablo Olivares
Second Advisor
Marcos Escobar
Abstract
This thesis examines the problem of pricing spread options under market models with jumps driven by a Compound Poisson Process and stochastic volatility in the form of a CIR process. Extending the work of Dempster and Hong, and Bates, we derive the characteristic function for two market models featuring normally distributed jumps, stochastic volatility, and two different dependence structures. Applying the method of Hurd and Zhou we use the Fast Fourier Transform to compute accurate spread option prices across a variety of strikes and initial price vectors at a very low computational cost when compared to Monte-Carlo pricing methods. We also examine the sensitivities to the model parameters and find strong dependence on the selection of the jump and stochastic volatility parameters.
Recommended Citation
Cane, Matthew, "Pricing spread options under Levy jump-diffusion models" (2011). Theses and dissertations. Paper 832.
http://digitalcommons.ryerson.ca/dissertations/832