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Rev Fin 1989; 2:241-250
© 1989 the Society for Financial Studies

Article

Numerical evaluation of multivariate contingent claims

PP Boyle1, J Evnine2 and S Gibbs3
1 University of California, Berkeley, USA and University of Waterloo, Waterloo, Ontario, N2L 3G1, Canada
2 Wells Fargo Investment Advisers
3 University of Waterloo, Waterloo, Ontario, Canada

Abstract

We develop a numerical approximation method for valuing multivariate contingent claims. The approach is based on an n-dimensional extension of the lattice binomial method. Closed-form solutions for the jump probabilities and the jump amplitudes are obtained. The accuracy of the method is illustrated in the case of European options when there are three underlying assets.


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