Probability Distribution And Option Pricing For Drawdown In A Stochastic Volatility Environment
AbstractThis paper studies the probability distribution and option pricing for drawdown in a stochastic volatility environment. Their analytical approximation formulas are derived by the application of a singular perturbation method (Fouque et al., 2000). The mathematical validity of the approximation is also proven. Then, numerical examples show that the instantaneous correlation between the asset value and the volatility state crucially affects the probability distribution and option prices for drawdown.
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Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.
Volume (Year): 13 (2010)
Issue (Month): 02 ()
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Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml
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- Akihiko Takahashi & Masashi Toda, 2012. "Note on an Extension of an Asymptotic Expansion Scheme," CIRJE F-Series CIRJE-F-860, CIRJE, Faculty of Economics, University of Tokyo.
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