Asymptotic expansion of European options with mean-reverting stochastic volatility dynamics

    Tutkimustuotos: ArtikkeliScientificvertaisarvioitu

    2 Sitaatiot (Scopus)


    We develop methods for pricing European options under general mean-reverting stochastic volatility dynamics, which can be used with both affine and non-affine volatility models. In our methods, the option price under stochastic volatility is expanded as a power series of parameters or variables by transferring the original partial differential equation to a set of solvable inhomogeneous Black–Scholes equations. The analytic approximation is more generally applicable than the fast Fourier transform, because it does not rely on the existence of a characteristic function. Finally, we numerically demonstrate our approach with the Heston, 3/2, and continuous-time GARCH models.
    JulkaisuFinance Research Letters
    DOI - pysyväislinkit
    TilaJulkaistu - elok. 2015
    OKM-julkaisutyyppiA1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä


    • Jufo-taso 1

    !!ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)
    • Business, Management and Accounting(all)
    • Applied Mathematics


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