A recursive pricing formula for a path-dependent option under the constant elasticity of variance diffusion

Jeong-Hoon Kim and Sang-Hyeon Park

Statistics & Probability Letters, 2014, vol. 94, issue C, 39-47

Abstract: In this paper, we consider a path-dependent option in finance under the constant elasticity of variance diffusion. We use a perturbation argument and the probabilistic representation (the Feynman–Kac theorem) of a partial differential equation to obtain a complete asymptotic expansion of the option price in a recursive manner based on the Black–Scholes formula and prove rigorously the existence of the expansion with a convergence error.

Keywords: Stochastic differential equation; Constant elasticity of variance; Asymptotic expansion; Lookback option (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.spl.2014.07.004

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