In this project, we study an asymptotic expansion method for solving stochastic volatility European option pricing problems. We explain the backgrounds and details associated with the method. Specifically, we present in full detail the arguments behind the derivation of the pricing PDEs and detailed calculation in deriving asymptotic option pricing formulas using our own model specifications. Finally, we discuss potential difficulties and problems in the implementation of the methods.
Worcester Polytechnic Institute
All authors have granted to WPI a nonexclusive royalty-free license to distribute copies of the work. Copyright is held by the author or authors, with all rights reserved, unless otherwise noted. If you have any questions, please contact email@example.com.
Chen, Lichen, "Asymptotic Methods for Stochastic Volatility Option Pricing: An Explanatory Study" (2011). Masters Theses (All Theses, All Years). 80.
stochastic volatility option pricing, asymptotic expansion