Expansion formulas for European options in a local volatility model
Because of its very general formulation, the local volatility model does not have an analytical solution for European options. In this article, we present a new methodology to derive closed form solutions for the price of any European options. The formula results from an asymptotic expansion, terms of which are Black-Scholes price and related Greeks. The accuracy of the formula depends on the payoff smoothness and it converges with very few terms.
|Date of creation:||Jun 2010|
|Publication status:||Published in International Journal of Theoretical and Applied Finance, World Scientific Publishing, 2010, 13 (4), pp.603-634. 〈10.1142/S0219024910005887〉|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00325939|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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