Main category
Economics (General Management)
Abstract
The arithmetic average of the resulting approximate basket price process is further approximated, based on a different analytical moment matching technique, using a shifted lognormal random variable. The call option price is then computed as a discounted expected value of the maximum of zero and the shifted lognormal random variable value less the fixed strike. Here, relevant defining parameters for the shifted, lognormal random variable are computed.
Further reading
https://ia904706.us.archive.org/22/items/mortgage-swap/MortgageSwap.pdf
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