A semigroup expansion for pricing barrier options (Q462410)
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scientific article; zbMATH DE number 6358575
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| English | A semigroup expansion for pricing barrier options |
scientific article; zbMATH DE number 6358575 |
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A semigroup expansion for pricing barrier options (English)
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20 October 2014
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Summary: This paper presents a new asymptotic expansion method for pricing continuously monitoring barrier options. In particular, we develop a semigroup expansion scheme for the Cauchy-Dirichlet problem in the second-order parabolic partial differential equations (PDEs) arising in barrier option pricing. As an application, we propose a concrete approximation formula under a stochastic volatility model and demonstrate its validity by some numerical experiments.
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