Computing the CEV option pricing formula using the semiclassical approximation of path integral

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

卷:388

Article

Araneda, Axel A.¹  Villena, Marcelo J.² 

[1] Masaryk Univ, Fac Econ & Adm, Inst Financial Complex Syst, Lipova 41a, Brno 60200, Czech Republic

[2] Univ Adolfo Ibanez, Fac Sci & Engn, Avda Diagonal Torres 2640, Santiago 7941169, Chile

关键词: Option pricing;    Constant elasticity of variance;    Path integral;    Semiclassical approximation;    Numerical methods;   

DOI  :  10.1016/j.cam.2020.113244

来源: Elsevier

【 摘 要 】

The CEV model allows volatility to change with the underlying price, capturing a basic empirical regularity very relevant for option pricing, such as the volatility smile. Nevertheless, the standard CEV solution, using the non-central chi-square approach, still presents high computational times. In this paper, the CEV option pricing formula is computed using the semiclassical approximation of Feynman's path integral. Our simulations show that the method is quite efficient and accurate compared to the standard CEV solution considering the pricing of European call options. (C) 2020 Elsevier B.V. All rights reserved.

【 授权许可】

Free