Download This PaperA Semi-Group Expansion for Pricing Barrier Options
Forthcoming in International Journal of Stochastic Analysis
29 Pages Posted: 18 Feb 2012 Last revised: 27 Aug 2014
Date Written: May 30, 2013
Abstract
This paper develops a rigorous asymptotic expansion method with its numerical scheme for the Cauchy-Dirichlet problem in second order parabolic partial differential equations (PDEs). As an application, we propose a new approximation formula for pricing barrier option in the log-normal SABR stochastic volatility model.
Keywords: asymptotic expansion, The Cauchy-Dirichlet problem, second order parabolic PDEs, barrier options, stochastic volatility model
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