Asymptotic and non asymptotic approximations for option valuation
We give a broad overview of approximation methods to derive analytical formulas for accurate and quick evaluation of option prices. We compare different approaches, from the theoretical point of view regarding the tools they require, and also from the numerical point of view regarding their performances. In the case of local volatility models with general time-dependency, we derive new formulas using the local volatility function at the mid-point between strike and spot: in general, our approximations outperform previous ones by Hagan and Henry-Labordère. We also provide approximations of the option delta.
|Date of creation:||2012|
|Date of revision:|
|Publication status:||Published in Thomas Gerstner and Peter Kloeden. Computational finance, World scientific, pp.80, 2012|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00720650|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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