Approximate pricing of European and Barrier claims in a local-stochastic\n volatility setting

2016/10/18 by Weston Barger, Matthew Lorig, Barger, Weston +1
Economics, Econometrics and Finance · #Credit Risk and Financial Regulations #FOS: Economics and business #Financial Risk and Volatility Modeling #Mathematical Finance (q-fin.MF) #Monetary Policy and Economic Impact #Stochastic processes and financial applications

paper · pdf · doi:10.48550/arxiv.1610.05728

openalex publication_date 2016/10/18 · openalex created_date 2022/10/06 · openalex updated_date 2026/07/28

Abstract

We derive asymptotic expansions for the prices of a variety of European and\nbarrier-style claims in a general local-stochastic volatility setting. Our\nmethod combines Taylor series expansions of the diffusion coefficients with an\nexpansion in the correlation parameter between the underlying asset and\nvolatility process. Rigorous accuracy results are provided for European-style\nclaims. For barrier-style claims, we include several numerical examples to\nillustrate the accuracy and versatility of our approximations.\n

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