Barrier Option Pricing under the 2-Hypergeometric Stochastic Volatility Model
Abstract
We investigate the pricing of financial options under the 2-hypergeometric stochastic volatility model. This is an analytically tractable model that reproduces the volatility smile and skew effects observed in empirical market data. Using a regular perturbation method from asymptotic analysis of partial differential equations, we derive an explicit and easily computable approximate formula for the pricing of barrier options under the 2-hypergeometric stochastic volatility model. The asymptotic convergence of the method is proved under appropriate regularity conditions, and a multi-stage method for improving the quality of the approximation is discussed. Numerical examples are also provided.
Cite
@article{arxiv.1610.03230,
title = {Barrier Option Pricing under the 2-Hypergeometric Stochastic Volatility Model},
author = {Rúben Sousa and Ana Bela Cruzeiro and Manuel Guerra},
journal= {arXiv preprint arXiv:1610.03230},
year = {2017}
}
Comments
22 pages. Accepted for publication in Journal of Computational and Applied Mathematics