Closed-form approximations in derivatives pricing: The Kristensen-Mele approach
Papers from arXiv.org
Kristensen and Mele (2011) developed a new approach to obtain closed-form approximations to continuous-time derivatives pricing models. The approach uses a power series expansion of the pricing bias between an intractable model and some known auxiliary model. Since the resulting approximation formula has closed-form it is straightforward to obtain approximations of greeks. In this thesis I will introduce Kristensen and Mele's methods and apply it to a variety of stochastic volatility models of European style options as well as a model for commodity futures. The focus of this thesis is the effect of different model choices and different model parameter values on the numerical stability of Kristensen and Mele's approximation.
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
http://arxiv.org/pdf/1804.08904 Latest version (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1804.08904
Access Statistics for this paper
More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().