Title: A Remark on a Singular Perturbation Method for Option Pricing under a Stochastic Volatility
Abstract: This paper studies the accuracy of a singular perturbation method for option pricing under a stochastic volatility model ([8]). First, through numerical experiments we confirm that the first order approximation provides sufficiently accurate option prices in a fast mean-reversion case of the volatility process while it does not in a non-fast mean-reversion case. Then, we derive the second order approximation formula and examine the improvement of the approximation.
Publication Year: 2008
Publication Date: 2008-10-01
Language: en
Type: preprint
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Cited By Count: 1
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