On Validity of the Asymptotic Expansion Approach in Contingent Claim Analysis

Naoto Kunitomo and Akihiko Takahashi
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Naoto Kunitomo: Faculty of Economics, University of Tokyo.

No 98-F-6, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Kunitomo and Takahashi (1995), and Takahashi (1997) have proposed a new methodology, called Small Disturbance Asymptotics, for the valuation problem of financial contingent claims when the underlying asset prices follow a general class of continuous Ito processes. It can be applicable to a wide range of valuation problems including complicated contingent claims associated with the Black-Scholes model and the term structure model of interest rates in the Heath-Jarrow-Morton framework. Our approach can be rigorously justified by an infinite dimensional analysis called the Watanabe-Yoshida theory on the Malliavin Calculus recently developed in stochastic analysis.

Date: 1998-02
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:98f06

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