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Homotopy Analysis Method for Boundary-Value Problem of Turbo Warrant Pricing under Stochastic Volatility

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  • Hoi Ying Wong
  • Mei Choi Chiu

Abstract

Turbo warrants are liquidly traded financial derivative securities in over-the-counter and exchange markets in Asia and Europe. The structure of turbo warrants is similar to barrier options, but a lookback rebate will be paid if the barrier is crossed by the underlying asset price. Therefore, the turbo warrant price satisfies a partial differential equation (PDE) with a boundary condition that depends on another boundary-value problem (BVP) of PDE. Due to the highly complicated structure of turbo warrants, their valuation presents a challenging problem in the field of financial mathematics. This paper applies the homotopy analysis method to construct an analytic pricing formula for turbo warrants under stochastic volatility in a PDE framework.

Suggested Citation

  • Hoi Ying Wong & Mei Choi Chiu, 2013. "Homotopy Analysis Method for Boundary-Value Problem of Turbo Warrant Pricing under Stochastic Volatility," Abstract and Applied Analysis, Hindawi, vol. 2013, pages 1-5, March.
    • Handle: RePEc:hin:jnlaaa:682524
    DOI: 10.1155/2013/682524
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