A Semi-group Expansion for Pricing Barrier Options
AbstractThis paper presents a new asymptotic expansion method for pricing continuously monitoring barrier options. In particular, we develops a semi-group expansion scheme for the Cauchy-Dirichlet problem in the second-order parabolic partial differential equations (PDEs) arising in barrier option pricing. As an application, we propose a concrete approximation formula under a stochastic volatility model and demonstrate its validity by some numerical experiments.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-841.
Length: 26 pages
Date of creation: Feb 2012
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
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