Asymptotic analysis for stochastic volatility: Edgeworth expansion
Computational Finance
2010-04-14 v1 Probability
Abstract
The validity of an approximation formula for European option prices under a general stochastic volatility model is proved in the light of the Edgeworth expansion for ergodic diffusions. The asymptotic expansion is around the Black-Scholes price and is uniform in bounded payoff func- tions. The result provides a validation of an existing singular perturbation expansion formula for the fast mean reverting stochastic volatility model.
Cite
@article{arxiv.1004.2106,
title = {Asymptotic analysis for stochastic volatility: Edgeworth expansion},
author = {Masaaki Fukasawa},
journal= {arXiv preprint arXiv:1004.2106},
year = {2010}
}