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arXiv · 2511.02700

Numerical valuation of European options under two-asset infinite-activity exponential Lévy models

Massimiliano Moda·Karel J. in 't Hout·Michèle Vanmaele·Fred Espen Benth
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Abstract

We propose a numerical method for the valuation of European-style options under two-asset infinite-activity exponential Lévy models. Our method extends the effective approach developed by Wang, Wan & Forsyth (2007) for the 1-dimensional case to the 2-dimensional setting and is applicable for general Lévy measures under mild assumptions. A tailored discretization of the non-local integral term is developed, which can be efficiently evaluated by means of the fast Fourier transform. For the temporal discretization, the semi-Lagrangian theta-method is employed in a convenient splitting fashion, where the diffusion term is treated implicitly and the integral term is handled explicitly by a fixed-point iteration. Numerical experiments for put-on-the-average options under Normal Tempered Stable dynamics reveal favourable second-order convergence of our method whenever the exponential Lévy process has finite-variation.

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Massimiliano Moda, Karel J. in 't Hout, Michèle Vanmaele, Fred Espen Benth. 2026-03-30. Numerical valuation of European options under two-asset infinite-activity exponential Lévy models. https://arxiv.org/abs/2511.02700

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