Computing the CEV option pricing formula using the semiclassical approximation of path integral
| Authors | |
|---|---|
| Year of publication | 2021 |
| Type | Article in Periodical |
| Magazine / Source | Journal of Computational and Applied Mathematics |
| MU Faculty or unit | |
| Citation | |
| web | https://www.sciencedirect.com/science/article/pii/S0377042720305355?pes=vor |
| Doi | http://dx.doi.org/10.1016/j.cam.2020.113244 |
| Keywords | Option pricing; Constant elasticity of variance; Path integral; Semiclassical approximation; Numerical methods |
| Attached files | |
| Description | 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. |
| Related projects: |