Pricing exotic options and American options: a multidimensional asymptotic expansion approach (Q356757)

The paper deals with the problem of pricing options which involve several underlying assets, such as options on the maximum of two assets and other exotics. The multidimensional characteristic is a challenge for the efficiency of numerical methods. The author, following [\textit{S. Watanabe}, Ann. Probab. 15, 1--39 (1987; Zbl 0633.60077); \textit{A. Takahashi} and \textit{K. Takehara}, Asia-Pac. Financ. Mark. 14, No. 1--2, 69--121 (2007; Zbl 1151.91545)], suggests the asymptotic expansion approach which allows for some analytic approximations that make computational schemes more efficient. First, the original SDE is perturbed by some parameter \(\epsilon\); then the Taylor expansion of the process is computed as a function of the powers of \(\epsilon\) and of the derivatives of the process with respect to the perturbation parameter; third an appropriate moment-generating function is computed. Eventually, this is used to compute an approximate distribution law for the original process. Section 3 presents some applications to exotics and Section 4 discusses the pricing of American options.