A weak approximation with Malliavin weights for local stochastic volatility model

Toshihiro Yamada ()
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Toshihiro Yamada: Hitotsubashi University, 2-1, Kunitachi, Tokyo, Japan

International Journal of Financial Engineering (IJFE), 2017, vol. 04, issue 01, 1-17

Abstract: This paper introduces a new efficient and practical weak approximation for option price under local stochastic volatility model as marginal expectation of stochastic differential equation, using iterative asymptotic expansion with Malliavin weights. The explicit Malliavin weights for SABR model are shown. Numerical experiments confirm the validity of our discretization with a few time steps.

Keywords: Local stochastic volatility model; weak approximation; Malliavin calculus (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S2424786317500025

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