A Reduction Method Applicable to Compound Option Formulas
Published Online:1 Jul 1989https://doi.org/10.1287/mnsc.35.7.823
Abstract
Curnow and Dunnett (Curnow, R. N., C. W. Dunnett. 1962. The numerical evaluation of certain multivariate normal integrals. Ann. Math. Statist.33 571–579.) derive a reduction formula for multivariate normal integrals with a certain type of correlation matrix. This paper presents a more general reduction formula which can reduce substantially the computational cost of high dimension integrals. This method has a number of applications in option pricing theory in finance.
