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Pricing of a “worst of” option using a Copula method
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2013 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

In this thesis, we use a Copula Method in order to price basket options and especially “worst of” options. The dependence structure of the underlying assets will be modeled using different families of copulas. The copulas parameters are estimated via the Maximum Likelihood Method from a sample of observed daily returns.

The Monte Carlo method will be revisited when it comes to generate underlying assets daily returns from the fitted copula.

Two baskets are priced: one composed of two correlated assets and one composed of two uncorrelated assets. The obtained prices are then compared with the price obtained using the Pricing Partners software

Place, publisher, year, edition, pages
2013. , 64 p.
Trita-MAT-E, 2013:52
National Category
Probability Theory and Statistics
URN: urn:nbn:se:kth:diva-132194OAI: diva2:668285
Subject / course
Mathematical Statistics
Educational program
Master of Science in Engineering -Engineering Physics
Available from: 2013-11-29 Created: 2013-10-23 Last updated: 2013-11-29Bibliographically approved

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