Pricing perpetual American floating strike lookback option under multiscale stochastic volatility model

Guohe Deng

Chaos, Solitons & Fractals, 2020, vol. 141, issue C

Abstract: This paper considers valuation of the perpetual American floating strike lookback call option under a multiscale stochastic volatility model where the volatility of the underlying asset price is driven by two stochastic processes with one fast mean-reverting factor and one slowly varying factor. By introducing new variables for dimension reduction and using a multiscale asymptotic technique, closed-form pricing formula for the perpetual American lookback call option is obtained. Numerical examples are used to examine the impacts of the stochastic volatility on the option prices and the optimal exercise prices with respect to model parameters.

Keywords: Perpetual American lookback option; Multiscale stochastic volatility; Multiscale asymptotic technique; Nonlinear parabolic problem (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:141:y:2020:i:c:s0960077920308043

DOI: 10.1016/j.chaos.2020.110411

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