finite difference method for basket option pricing under merton model

In financial markets , dynamics of underlying assets are often specified via stochasticdifferential equations of jump - diffusion type . in this paper , we suppose that two financialassets evolved by correlated brownian motion . the value of a contingent claim written on twounderlying assets under jump diffusion model is given by two - dimensional parabolic partialintegro - differential equation ( p i d e ) , which is an extension of the black - scholes equation witha new integral term . we show how basket option prices in the jump - diffusion models , mainlyon the merton model , can be approximated using finite difference method . to avoid a denselinear system solution , we compute the integral term by using the trapezoidal method . thenumerical results show the efficiency of proposed method .