Related papers: A closed-form approximation for pricing geometric …
We consider closed-form approximations for European put option prices within the Heston and GARCH diffusion stochastic volatility models with time-dependent parameters. Our methodology involves writing the put option price as an expectation…
This paper focuses on the pricing of continuous geometric Asian options (GAOs) under a multifactor stochastic volatility model. The model considers fast and slow mean reverting factors of volatility, where slow volatility factor is…
We derive a closed-form solution for the price of an average price as well as an average strike geometric Asian option, by making use of the path integral formulation. Our results are compared to a numerical Monte Carlo simulation. We also…
In this paper we propose a closed-form approximation for the price of basket options under a multivariate Black-Scholes model, based on Taylor expansions and the calculation of mixed exponential-power moments of a Gaussian distribution. Our…
Option contracts can be valued by using the Black-Scholes equation, a partial differential equation with initial conditions. An exact solution for European style options is known. The computation time and the error need to be minimized…
Using classical Taylor series techniques, we develop a unified approach to pricing and implied volatility for European-style options in a general local-stochastic volatility setting. Our price approximations require only a normal CDF and…
We establish an explicit approximation formula for European put option prices within a general stochastic volatility model with time-dependent parameters. Our methodology is based on expansions of the mixing representation of the put option…
We provide a complete representation of the interest rate in the extended CIR model. Since it was proved in Maghsoodi (1996) that the representation of the CIR process as a sum of squares of independent Ornstein-Uhlenbeck processes is…
The aim of this paper is to investigate the use of close formula approximation for pricing European mortgage options. Under the assumption of logistic duration and normal mortgage rates the underlying price at the option expiry is…
We present closed analytical approximations for the pricing of basket options, also applicable to Asian options with discrete averaging under the Black-Scholes model with time-dependent parameters. The formulae are obtained by using a…
In the framework of Black-Scholes-Merton model of financial derivatives, a path integral approach to option pricing is presented. A general formula to price European path dependent options on multidimensional assets is obtained and…
This research addresses accurate option pricing by employing models beyond the traditional Black-Scholes framework. While Black-Scholes provides a closed-form solution, it is limited by assumptions of constant volatility, no dividends, and…
Kristensen and Mele (2011) developed a new approach to obtain closed-form approximations to continuous-time derivatives pricing models. The approach uses a power series expansion of the pricing bias between an intractable model and some…
We derive new formulas for the price of the European call and put options in the Black-Scholes model, under the form of uniformly convergent series generalizing previously known approximations. We also provide precise boundaries for the…
The issue of developing simple Black-Scholes type approximations for pricing European options with large discrete dividends was popular since early 2000's with a few different approaches reported during the last 10 years. Moreover, it has…
In this paper we present a simple, but new, approximation methodology for pricing a call option in a Black \& Scholes market characterized by stochastic interest rates. The method, based on a straightforward Gaussian moment matching…
An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and…
The Black-Scholes formula for pricing options on stocks and other securities has been generalized by Merton and Garman to the case when stock volatility is stochastic. The derivation of the price of a security derivative with stochastic…
In the present work, we propose a new multifactor stochastic volatility model in which slow factor of volatility is approximated by a parabolic arc. We retain ourselves to the perturbation technique to obtain approximate expression for…
In this paper, we price American-style Parisian down-and-in call options under the Black-Scholes framework. Usually, pricing an American-style option is much more difficult than pricing its European-style counterpart because of the…