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Homotopy analysis method for option pricing under stochastic volatility

✍ Scribed by Sang-Hyeon Park; Jeong-Hoon Kim

Publisher
Elsevier Science
Year
2011
Tongue
English
Weight
219 KB
Volume
24
Category
Article
ISSN
0893-9659

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✦ Synopsis

In this paper, the homotopy analysis method, whose original concept comes from algebraic topology, is applied to connect the Black-Scholes option price (the good initial guess) to the option price under general stochastic volatility environment in a recursive manner. We obtain the homotopy solutions for the European vanilla and barrier options as well as the relevant convergence conditions.

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