Closed-Form Approximation of Timer Option Prices under General Stochastic Volatility Models

We develop an asymptotic expansion technique for pricing timer options under general stochastic volatility models around small volatility of variance. Closed-form approximation formulas have been obtained for the Heston model and the 3/2-model. The approximation has an easy-to-understand Black-Scholes-like form and many other attractive properties. Numerical analysis shows that the approximation formulas are very fast and accurate.

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Year of publication:	2013
Authors:	Li, Minqiang ; Mercurio, Fabio
Institutions:	Volkswirtschaftliche Fakultät, Ludwig-Maximilians-Universität München
Subject:	Timer Option \| Closed-Form Approximation \| Perturbation

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Extent:	application/pdf
Series:	MPRA Paper.
Type of publication:	Book / Working Paper
Classification:	C02 - Mathematical Methods ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011110016