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Annals of Finance· 2026Q2

Pricing basket options with the first three moments of the basket: log-normal models and beyond

Hu Dongdong, Hasanjan Sayit, Frédéri Viens

Short summary

A novel closed-form solution for pricing basket options under log-normal models is derived, reducing the problem to solving a single cubic equation based on the basket's skewness, mean, and variance.

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FinanceEconomics, Econometrics and Finance