Closed-Form Approximation of Timer Option Prices under General Stochastic Volatility Models
AbstractWe develop an asymptotic expansion technique for pricing timer options under general stochastic volatility models around small volatility of variance. Closed-form approximation formulas have been obtained for the Heston model and the 3/2-model. The approximation has an easy-to-understand Black-Scholes-like form and many other attractive properties. Numerical analysis shows that the approximation formulas are very fast and accurate.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 47465.
Date of creation: 2013
Date of revision:
Timer Option; Closed-Form Approximation; Perturbation;
Find related papers by JEL classification:
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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