Cumulative Multivariate Normal Distribution
Hi Ben, Have you looked at pmvnorm in package mvtnorm.? This is Genz's method, I am working with Jan-Dash on a new approximation for cumulative normal and I have some semi-tested code of that, we are currently testing it for Worst-of and other rainbow type options. http://arxiv.org/pdf/cs.CE/0611061 The alternative to price these would be to use monte-carlo to do the integration and just price them using that, see for example the attached R code which generates multi-variate paths. You can then use these paths to then compute the discounted payoff function. Hope this helps, Best Krishna ps: the drift is simply the risk-neutral drift however for currencies you have to factor in the quanto adjustment. Also this piece of code was written about 4 years ago so pardon the coding standards. >assetPath<-multiassetpath(c(2,3),c(-0.1,-0.2),2,matrix(c(1,0.2,0.2,1),2,2),1,100,2)
Chiquoine, Ben wrote:
Hi, Does anyone know of a function similar to the CBND function for multivariate distributions? I've seen a couple but what I am really looking for is one that will take (x1,x2,x3,cor112,cor113) as inputs. Alternatively, does anyone know of a package with built in functions for pricing a worst of three color rainbow options? Any help along these lines would be greatly appreciated. Thanks, Ben
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