A Taylor series approach to pricing and implied volatility for local–stochastic volatility models

Matthew Lorig, Stefano Pagliarani and Andrea Pascucci

Journal of Risk

Abstract: ABSTRACT Using classical Taylor series techniques, we develop a unified approach to pricing and implied volatility for European-style options in a general local-stochastic volatility setting. Our price approximations require only a normal cumulative distribution function and our implied volatility approximations are fully explicit (ie, they require no special functions, no infinite series and no numerical integration). As such, approximate prices can be computed as efficiently as Black-Scholes prices, and approximate implied volatilities can be computed nearly instantaneously.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk/2385609/a-tay ... ic-volatility-models (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ4:2385609

Access Statistics for this article

More articles in Journal of Risk from Journal of Risk
Bibliographic data for series maintained by Thomas Paine ().