An Asymptotic Expansion for Local-Stochastic Volatility with Jump Models

Kenichiro Shiraya and Akihiko Takahashi
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Kenichiro Shiraya: Faculty of Economics, The University of Tokyo
Akihiko Takahashi: Faculty of Economics, The University of Tokyo

No CIRJE-F-998, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

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. ∗Forthcoming

Pages: 27 pages
Date: 2015-12
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2015cf998

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