Pricing of the Geometric Asian Options Under a Multifactor Stochastic Volatility Model

Autor:	Malhotra, Gifty, Srivastava, R., Taneja, H. C.
Rok vydání:	2019
Předmět:	Quantitative Finance - Pricing of Securities Quantitative Finance - Mathematical Finance
Druh dokumentu:	Working Paper
Popis:	This paper focuses on the pricing of continuous geometric Asian options (GAOs) under a multifactor stochastic volatility model. The model considers fast and slow mean reverting factors of volatility, where slow volatility factor is approximated by a quadratic arc. The asymptotic expansion of the price function is assumed, and the first order price approximation is derived using the perturbation techniques for both floating and fixed strike GAOs. Much simplified pricing formulae for the GAOs are obtained in this multifactor stochastic volatility framework. The zeroth order term in the price approximation is the modified Black-Scholes price for the GAOs. This modified price is expressed in terms of the Black-Scholes price for the GAOs. The accuracy of the approximate option pricing formulae is established, and the model parameter is also estimated by capturing the volatility smiles. Comment: 29 pages, 2 figures
Databáze:	arXiv
Externí odkaz:	http://arxiv.org/abs/1912.10640 Zobrazit plný text záznamu View this record from Arxiv