Approximate-Analytical solution to the information measure's based quanto option pricing model

A B S T R A C T In this paper, we derive risk-neutral density functions of multi-asset to model the price of European op-tions by incorporating a simple constrained minimization of the Kullback measure of relative information. Based on the theoretical analysis, when the underlying financial asset price follows a geometric Brownian motion, we obtain a two-dimensional quanto-option Black-Scholes equation. In addition, to evaluate the explicit solution of this multi-asset option pricing model, we design a Liouville-Caputo time-fractional derivative and use the Laplace homotopy perturbation method to obtain the explicit scheme in the form of convergent series under suitable regularity conditions. (c) 2021 Elsevier Ltd. All rights reserved.