Matched asymptotic expansions in financial engineering
Modern 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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