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An Asymptotic Expansion Formula for Up-and-Out Barrier Option Price under Stochastic Volatility Model

Author

Listed:
  • Takashi Kato

    (Graduate School of Engineering Science, Osaka University)

  • Akihiko Takahashi

    (Faculty of Economics, University of Tokyo)

  • Toshihiro Yamada

    (Graduate School of Economics, University of Tokyo and & MTEC)

Abstract

This paper derives a new semi closed-form approximation formula for pricing an upand- out barrier option under a certain type of stochastic volatility model including SABR model by applying a rigorous asymptotic expansion method developed by Kato, Takahashi and Yamada [1]. We also demonstrate the validity of our approximation method through numerical examples.

Suggested Citation

  • Takashi Kato & Akihiko Takahashi & Toshihiro Yamada, 2013. "An Asymptotic Expansion Formula for Up-and-Out Barrier Option Price under Stochastic Volatility Model," CIRJE F-Series CIRJE-F-873, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2013cf873
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2013/2013cf873.pdf
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    Citations

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    Cited by:

    1. P. Carr & A. Itkin & D. Muravey, 2022. "Semi-analytical pricing of barrier options in the time-dependent Heston model," Papers 2202.06177, arXiv.org.
    2. Kenichiro Shiraya, 2016. "An approximation method for pricing continuous barrier options under multi-asset local stochastic volatility models (Forthcoming in International Journal of Theoretical and Applied Finance.)," CARF F-Series CARF-F-397, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Nov 2018.
    3. Shiraya, Kenichiro & Takahashi, Akihiko, 2017. "A general control variate method for multi-dimensional SDEs: An application to multi-asset options under local stochastic volatility with jumps models in finance," European Journal of Operational Research, Elsevier, vol. 258(1), pages 358-371.
    4. Akihiko Takahashi & Toshihiro Yamada, 2013. "On Error Estimates for Asymptotic Expansions with Malliavin Weights -Application to Stochastic Volatility Model-," CARF F-Series CARF-F-324, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Mar 2014.
    5. Andrey Itkin & Dmitry Muravey, 2021. "Semi-analytical pricing of barrier options in the time-dependent $\lambda$-SABR model," Papers 2109.02134, arXiv.org.
    6. Jiro Akahori & Flavia Barsotti & Yuri Imamura, 2017. "The Value of Timing Risk," Papers 1701.05695, arXiv.org.
    7. Akihiko Takahashi & Toshihiro Yamada, 2013. "On Error Estimates for Asymptotic Expansions with Malliavin Weights -- Application to Stochastic Volatility Model --," CIRJE F-Series CIRJE-F-897, CIRJE, Faculty of Economics, University of Tokyo.
    8. Akihiko Takahashi & Toshihiro Yamada, 2014. "On Error Estimates for Asymptotic Expansions with Malliavin Weights -Application to Stochastic Volatility Model- (Revised version of CARF-F-324; Forthcoming in "Mathematics of Operations Research," CARF F-Series CARF-F-347, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Sep 2014.
    9. Jiling Cao & Jeong-Hoon Kim & Xi Li & Wenjun Zhang, 2022. "Pricing Path-dependent Options under Stochastic Volatility via Mellin Transform," Papers 2205.00573, arXiv.org.
    10. Akihiko Takahashi, 2015. "Asymptotic Expansion Approach in Finance," CARF F-Series CARF-F-356, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Aug 2015.
    11. Cao, Jiling & Kim, Jeong-Hoon & Li, Xi & Zhang, Wenjun, 2023. "Valuation of barrier and lookback options under hybrid CEV and stochastic volatility," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 208(C), pages 660-676.
    12. Akihiko Takahashi & Toshihiro Yamada, 2015. "On Error Estimates for Asymptotic Expansions with Malliavin Weights: Application to Stochastic Volatility Model," Mathematics of Operations Research, INFORMS, vol. 40(3), pages 513-541, March.

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