Homotopy Analysis Method for Boundary‐Value Problem of Turbo Warrant Pricing under Stochastic Volatility

Hoi Ying Wong and Mei Choi Chiu

Abstract and Applied Analysis, 2013, vol. 2013, issue 1

Abstract: Turbo warrants are liquidly traded financial derivative securities in over‐the‐counter and exchange markets in Asia and Europe. The structure of turbo warrants is similar to barrier options, but a lookback rebate will be paid if the barrier is crossed by the underlying asset price. Therefore, the turbo warrant price satisfies a partial differential equation (PDE) with a boundary condition that depends on another boundary‐value problem (BVP) of PDE. Due to the highly complicated structure of turbo warrants, their valuation presents a challenging problem in the field of financial mathematics. This paper applies the homotopy analysis method to construct an analytic pricing formula for turbo warrants under stochastic volatility in a PDE framework.

Date: 2013
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https://doi.org/10.1155/2013/682524

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jnlaaa:v:2013:y:2013:i:1:n:682524

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