A Remark on a Singular Perturbation Method for Option Pricing Under a Stochastic Volatility Model |
| |
Authors: | Kyo Yamamoto Akihiko Takahashi |
| |
Institution: | 1. Graduate School of Economics, The University of Tokyo, 7-3-1, Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan
|
| |
Abstract: | This paper studies the approximation accuracy of a singular perturbation method for option pricing up to the second order
under a stochastic volatility model. First, numerical experiments confirm that the first order approximation provides sufficiently
accurate option prices in a fast mean-reversion volatility case. On the other hand, it creates relatively large errors in
a non-fast mean-reversion volatility environment. Then, the second order approximation formula is derived and the improvement
of the approximation is investigated. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |
|