A Simple Closed-Form Approximation for Constant Elasticity of Variance Spread Options

2013 ◽  
Author(s):  
C.F. Lo ◽  
Xiao Fen Zheng
Keyword(s):  
Closed Form ◽  
Constant Elasticity ◽  
Constant Elasticity Of Variance ◽  
Spread Options ◽  
Closed Form Approximation

A simple closed-form approximation for constant elasticity of variance spread options

2020 ◽  
Vol 07 (04) ◽  
pp. 2050047
Author(s):  
C. F. Lo ◽  
X. F. Zheng
Keyword(s):  
Operator Splitting ◽  
Splitting Method ◽  
Option Price ◽  
Analytical Approximation ◽  
Constant Elasticity ◽  
Constant Elasticity Of Variance ◽  
Spread Options ◽  
Operator Splitting Method ◽  
Black Scholes ◽  
Closed Form Approximation

By applying the Lie–Trotter operator splitting method and the idea of the WKB method, we have developed a simple, accurate and efficient analytical approximation for pricing the constant elasticity of variance (CEV) spread options. The derived option price formula bears a striking resemblance to Kirk’s formula of the Black–Scholes spread options. Illustrative numerical examples show that the proposed approximation is not only extremely fast and robust, but it is also remarkably accurate for typical volatilities and maturities of up to two years.

Valuation of American Continuous-Installment Options Under the Constant Elasticity of Variance Model

2016 ◽  
Vol 4 (2) ◽  
pp. 149-168
Author(s):  
Guohe Deng ◽  
Guangming Xue
Keyword(s):  
Closed Form ◽  
Stock Price ◽  
Option Price ◽  
Cev Model ◽  
Constant Elasticity ◽  
Constant Elasticity Of Variance ◽  
Closed Form Solutions ◽  
Representation Method ◽  
Speed Accuracy ◽  
Installment Options

AbstractThis article prices American-style continuous-installment options in the constant elasticity of variance (CEV) diffusion model where the volatility is a function of the stock price. We derive the semi-closed form formulas for the American continuous-installment options using Kim’s integral representation method and then obtain the closed-form solutions by approximating the optimal exercise and stopping boundaries as step functions. We demonstrate the speed-accuracy of our approach for different parameters of the CEV model. Furthermore, the effects on both option price and the optimal boundaries are discussed and the causes of underestimating or overestimating the option prices are analyzed under the classical Black-Scholes-Merton model, in particular, for the case of elasticity coefficient with numerical examples.

THE PRICING OF EUROPEAN OPTIONS UNDER THE CONSTANT ELASTICITY OF VARIANCE WITH STOCHASTIC VOLATILITY

2013 ◽  
Vol 12 (01) ◽  
pp. 1350004 ◽  
Author(s):  
BOUNGHUN BOCK ◽  
SUN-YONG CHOI ◽  
JEONG-HOON KIM
Keyword(s):  
Numerical Experiment ◽  
Stochastic Volatility ◽  
Hybrid Model ◽  
Multiscale Analysis ◽  
Asset Price ◽  
European Options ◽  
Barrier Option ◽  
Price Model ◽  
Constant Elasticity ◽  
Constant Elasticity Of Variance

This paper considers a hybrid risky asset price model given by a constant elasticity of variance multiplied by a stochastic volatility factor. A multiscale analysis leads to an asymptotic pricing formula for both European vanilla option and a Barrier option near the zero elasticity of variance. The accuracy of the approximation is provided in a rigorous manner. A numerical experiment for implied volatilities shows that the hybrid model improves some of the well-known models in view of fitting the data for different maturities.

Closed Form Approximation of Swap Exposures

2013 ◽  
Author(s):  
Heikki Sepppll ◽  
Ser-Huang Poon ◽  
Thomas Schrrder
Keyword(s):  
Closed Form ◽  
Closed Form Approximation

Economic Capital Modeling Closed Form Approximation for Real-Time Applications

2014 ◽  
Author(s):  
Thomas Ribarits ◽  
Axel Clement ◽  
Heikki Sepppll ◽  
Hua Bai ◽  
Ser-Huang Poon
Keyword(s):  
Closed Form ◽  
Real Time ◽  
Economic Capital ◽  
Real Time Applications ◽  
Closed Form Approximation
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