An Asymptotic Expansion with Push-Down of Malliavin Weights
This paper derives asymptotic expansion formulas for option prices and implied volatilities as well as the density of the underlying asset price in a stochastic volatility model. In particular, the integration-by-parts formula in Malliavin calculus and the push-down of Malliavin weights are effectively applied. It provides an expansion formula for generalized Wiener functionals and closed-form approximation formulas in stochastic volatility environment. In addition, it presents applications of the general formula to a local volatility expansion as well as to expansions of option prices for the shifted log-normal model with stochastic volatility. Moreover, with some result of Malliavin calculus in jump-type models, this paper derives an approximation formula for the jump-diffusion model in stochastic volatility environment. Some numerical examples are also shown.
|Date of creation:||Dec 2009|
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- Eric Fournié & Jean-Michel Lasry & Pierre-Louis Lions & Jérôme Lebuchoux & Nizar Touzi, 1999. "Applications of Malliavin calculus to Monte Carlo methods in finance," Finance and Stochastics, Springer, vol. 3(4), pages 391-412.
- Akihiko Takahashi & Nakahiro Yoshida, 2004. "An Asymptotic Expansion Scheme for Optimal Investment Problems," Statistical Inference for Stochastic Processes, Springer, vol. 7(2), pages 153-188, May.
- Alan L. Lewis, 2000. "Option Valuation under Stochastic Volatility," Option Valuation under Stochastic Volatility, Finance Press, number ovsv, August.
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