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

Araneda, Axel A.; Villena, Marcelo J.

Abstract

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.

Más información

Título según WOS: Computing the CEV option pricing formula using the semiclassical approximation of path integral
Título de la Revista: JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS
Volumen: 388
Editorial: ELSEVIER SCIENCE BV
Fecha de publicación: 2021
DOI:

10.1016/j.cam.2020.113244

Notas: ISI