Pricing exotic options and American options: a multidimensional asymptotic expansion approach (Q356757)
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English | Pricing exotic options and American options: a multidimensional asymptotic expansion approach |
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Pricing exotic options and American options: a multidimensional asymptotic expansion approach (English)
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26 July 2013
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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.
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American options
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average strike option
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Monte Carlo
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Heston model
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asymptotic expansion
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CEV model
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simulation
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