double average rate options

jaccker · February 3rd, 2006, 1:44 pm

I am working on Double average rate options. Double average rate options are options where the payoff depends on both the average rate and the average strike at a number of predetermined dates during the life of the option. The average dates for the average rate and average strike may be different.I wonder the best approach to this kind of option, PDE or Monte Carlo? Any reference paper is greatly appreciated.Thanks

gammashark · February 3rd, 2006, 7:06 pm

I looked at this problem a few years ago, but the project that required the model was dropped.I'd be interested if anyone's got a paper reference, or a simple knock up in Excel. The dimensionality of the problem made it tricky (at least the version I was looking at) to do quickly.

jfuqua · February 4th, 2006, 4:15 pm

This probably won't tell you anything you don't know but may be of interest.http://www.fincad.com/support/developer ... ptions.htm