CIRJE-F-998 | "An Asymptotic Expansion for Local-Stochastic Volatility with Jump Models" |
Author Name | Shiraya, Kenichiro and Akihiko Takahashi |
Date | December 2015 |
Full Paper | |
Remarks | Subsequently published in Stochastics: An International Journal of Probability and Stochastic Processes, Published online: 01 Feb 2016 |
Abstract |
This paper develops an asymptotic expansion method for general stochastic differential equations (SDEs) with jumps and their functions. By applying the method, we derive an explicit approximation formula for pricing options on functions of multiple assets under localstochastic volatility with jump models. Moreover, we present numerical examples for pricing basket options based on the parameters calibrated to the actual market data, which confirms the validity of our method in practice. |