Uniform Asymptotic Expansions for Pricing European Options |
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Authors: | Rafail Z Khasminskii G Yin |
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Institution: | (1) Department of Mathematics, Wayne State University, Detroit, MI 48202, USA |
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Abstract: | Starting with a stochastic volatility model, in which the volatility depends
on a nonlinear function of a fast varying diffusion, and assuming the fast
diffusion is mean reverting, the problem of pricing European options is considered
in this paper. Uniform asymptotic expansions of the option price are obtained. The
formal expansions are justified and the uniform error bounds are derived using outer and inner expansions of the option prices. |
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Keywords: | Singular perturbation Two-time scale Diffusion European option |
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