Matched asymptotic expansions in financial engineering
AbstractModern financial practice depends heavily on mathematics and a correspondingly large theory has grown up to meet this demand. This paper focuses on the use of matched asymptotic expansions in option pricing; it presents illustrations of the approach in `plain vanilla' option valuation, in valuation using a fast mean-reverting-stochastic volatility model, and in a model for illiquid markets. A tentative framework for matched asymptotic expansions applied directly to stochastic processes of diffusion type is also proposed.
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Bibliographic InfoPaper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2005mf01.
Date of creation: 2005
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- Pagliarani, Stefano & Pascucci, Andrea, 2011. "Analytical approximation of the transition density in a local volatility model," MPRA Paper 31107, University Library of Munich, Germany.
- Bernard, Carole & Le Courtois, Olivier & Quittard-Pinon, François, 2008. "Pricing derivatives with barriers in a stochastic interest rate environment," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2903-2938, September.
- Stefano, Pagliarani & Pascucci, Andrea & Candia, Riga, 2011. "Expansion formulae for local Lévy models," MPRA Paper 34571, University Library of Munich, Germany.
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