Work

Expansion Formulas for European Options in a Local Volatility Model

Year: 2010

Type: article

Abstract: Because of its very general formulation, the local volatility model does not have an analytical solution for European options. In this article, we present a new methodology to derive closed form solutions for the price of any European options. The formula results from an asymptotic expansion, terms of which are Black-Scholes price and related Greeks. The accuracy of the formula depends on the payoff smoothness and it converges with very few terms.

Source: International Journal of Theoretical and Applied Finance

DOI: 10.1142/s0219024910005887

Authors: E. BENHAMOU, E. GOBET, M. MIRI

Institutions: Centre National de la Recherche Scientifique, Laboratoire Jean Kuntzmann, Pôle de recherche et d'enseignement supérieur Université de Grenoble

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2084044200

FWCI: 11.69

Cites: 11

Cited by: 49

Related to: 10