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arXiv · 1202.3002

A Semi-group Expansion for Pricing Barrier Options

Takashi Kato·Akihiko Takahashi·Toshihiro Yamada
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Abstract

This paper presents a new asymptotic expansion method for pricing continuously monitoring barrier options. In particular, we develops a semi-group expansion scheme for the Cauchy-Dirichlet problem in the second-order parabolic partial differential equations (PDEs) arising in barrier option pricing. As an application, we propose a concrete approximation formula under a stochastic volatility model and demonstrate its validity by some numerical experiments.

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Takashi Kato, Akihiko Takahashi, Toshihiro Yamada. 2013-06-04. A Semi-group Expansion for Pricing Barrier Options. https://doi.org/10.1155/2014%2F268086

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