The Black-Scholes Equation Revisited: Asymptotic Expansions and Singular Perturbations
19 Pages Posted: 23 Mar 2005
In this paper, novel singular perturbation techniques are applied to price European, American, and barrier options. Employment of these methods leads to a significant simplification of the problem in all cases, by reducing the number of parameters. For American options, the valuation problem is reduced to a procedure that may be performed on a rudimentary handheld calculator. The method also sheds light on the evolution of option prices for all of the cases considered, the results being particularly illuminating for American and barrier options.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
By Nengjiu Ju