ComonotonicityInformation-based modelBlack-Scholes modelMulti-asset optionEuropean call option

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Cynthia Ikamari, Ngare P, Weke P. "Multi-asset option pricing using an information-based model." Scientific African. 2020;10:00564. AbstractWebsite

Diversification of assets by an investor offers reduced exposure to risk compared to investing in a single asset. A multi-asset option gives an investor this advantage as its payout depends on the overall performance of several underlying assets. This study uses an information-based model to derive an approximate price for European call multi-asset options. The single asset price is derived using the risk-neutral pricing approach, and the multi-asset case uses the notion of comonotonicity. A numerical illustration is looked at to validate the theoretical results and to show the accuracy of the information-based model. The results show that prices from the information-based model provide a close fit to the empirical prices using a suitable information flow rate parameter. Hence, by making use of the information available in the market, an investor can price multi-asset European call options.

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