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An Asymptotic Expansion Formula for Up-and-Out Barrier Option Price under Stochastic Volatility Model

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  • Takashi Kato
  • Akihiko Takahashi
  • Toshihiro Yamada
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    Abstract

    This paper derives a new semi closed-form approximation formula for pricing an up-and-out barrier option under a certain type of stochastic volatility model including SABR model by applying a rigorous asymptotic expansion method developed by Kato, Takahashi and Yamada (2012). We also demonstrate the validity of our approximation method through numerical examples.

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    File URL: http://arxiv.org/pdf/1302.3306
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1302.3306.

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    Date of creation: Feb 2013
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    Publication status: Published in JSIAM Letters Vol. 5 (2013) p.17-20
    Handle: RePEc:arx:papers:1302.3306

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    Web page: http://arxiv.org/

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    Cited by:
    1. Akihiko Takahashi & Toshihiro Yamada, 2013. "On Error Estimates for Asymptotic Expansions with Malliavin Weights -Application to Stochastic Volatility Model-," CARF F-Series CARF-F-324, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Mar 2014.
    2. Akihiko Takahashi & Toshihiro Yamada, 2013. "On Error Estimates for Asymptotic Expansions with Malliavin Weights ï¼ Application to Stochastic Volatility Model ï¼," CIRJE F-Series CIRJE-F-897, CIRJE, Faculty of Economics, University of Tokyo.

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