Expansion formulas for European options in a local volatility model - Archive ouverte HAL
Article Dans Une Revue International Journal of Theoretical and Applied Finance Année : 2010

Expansion formulas for European options in a local volatility model

Eric Benhamou
  • Fonction : Auteur
Emmanuel Gobet
Mohammed Miri
  • Fonction : Auteur
  • PersonId : 958902

Résumé

Because of its very general formulation, the local volatility model does not have an analytical solution for European options. In this article, we present a new methodology to derive closed form solutions for the price of any European options. The formula results from an asymptotic expansion, terms of which are Black-Scholes price and related Greeks. The accuracy of the formula depends on the payoff smoothness and it converges with very few terms.
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Dates et versions

hal-00325939 , version 1 (30-09-2008)

Identifiants

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Eric Benhamou, Emmanuel Gobet, Mohammed Miri. Expansion formulas for European options in a local volatility model. International Journal of Theoretical and Applied Finance, 2010, 13 (4), pp.603-634. ⟨10.1142/S0219024910005887⟩. ⟨hal-00325939⟩
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