A Weak Approximation with Asymptotic Expansion and Multidimensional Malliavin Weights

Akihiko Takahashi and Toshihiro Yamada
Additional contact information
Akihiko Takahashi: The University of Tokyo
Toshihiro Yamada: The University of Tokyo & MTEC

No CARF-F-335, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper develops a new efficient scheme for approximations of expectations of the solutions to stochastic differential equations (SDEs). In particular, we present a method for connecting approximate operators based on an asymptotic expansion with multidimensional Malliavin weights to compute a target expectation value precisely. The mathematical validity is given based on Watanabe and Kusuoka theories in Malliavin calculus. Moreover, numerical experiments for option pricing under local and stochastic volatility models confirm the effectiveness of our scheme. Especially, our weak approximation substantially improve the accuracy at deep Out-of-The-Moneys (OTMs).

Pages: 22 pages
Date: 2013-12, Revised 2014-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.carf.e.u-tokyo.ac.jp/old/pdf/workingpaper/fseries/F335.pdf (application/pdf)

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:cfi:fseres:cf335

Access Statistics for this paper

More papers in CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by ().