Closed-Form Approximation of Timer Option Prices under General Stochastic Volatility Models
We 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.
|Date of creation:||2013|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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- Li, Minqiang, 2008. "Closed-Form Approximations for Spread Option Prices and Greeks," MPRA Paper 6994, University Library of Munich, Germany.
- Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
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- Minqiang Li & Jieyun Zhou & Shi-Jie Deng, 2010.
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- Li, Minqiang & Deng, Shijie & Zhou, Jieyun, 2008. "Multi-asset Spread Option Pricing and Hedging," MPRA Paper 8259, University Library of Munich, Germany.
- Ling Zhi Liang & Damiaan Lemmens & Jacques Tempere, 2011. "Path integral approach to the pricing of timer options with the Duru-Kleinert time transformation," Papers 1101.3713, arXiv.org.
- Avi Bick, 1995. "Quadratic-Variation-Based Dynamic Strategies," Management Science, INFORMS, vol. 41(4), pages 722-732, April.
- Ahn, Dong-Hyun & Gao, Bin, 1999. "A Parametric Nonlinear Model of Term Structure Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 721-762. Full references (including those not matched with items on IDEAS)
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