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arXiv · 2205.00573

Pricing Path-dependent Options under Stochastic Volatility via Mellin Transform

Jiling Cao·Jeong-Hoon Kim·Xi Li·Wenjun Zhang
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Abstract

In this paper, we derive closed-form formulas of first-order approximation for down-and-out barrier and floating strike lookback put option prices under a stochastic volatility model, by using an asymptotic approach. To find the explicit closed-form formulas for the zero-order term and the first-order correction term, we use Mellin transform. We also conduct a sensitivity analysis on these formulas, and compare the option prices calculated by them with those generated by Monte-Carlo simulation.

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Jiling Cao, Jeong-Hoon Kim, Xi Li, Wenjun Zhang. 2022-05-01. Pricing Path-dependent Options under Stochastic Volatility via Mellin Transform. https://arxiv.org/abs/2205.00573

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