The Mathematical Institute, University of Oxford, Eprints Archive

Matched asymptotic expansions in financial engineering

Howison, Sam (2005) Matched asymptotic expansions in financial engineering. Journal of Engineering Mathematics . (In Press)

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Abstract

Modern financial practice depends heavily on mathematics and a correspondingly large theory has grown up to meet this demand. This paper focuses on the use of matched asymptotic expansions in option pricing; it presents illustrations of the approach in `plain vanilla' option valuation, in valuation using a fast mean-reverting-stochastic volatility model, and in a model for illiquid markets. A tentative framework for matched asymptotic expansions applied directly to stochastic processes of diffusion type is also proposed.

Item Type:Article
Additional Information:The paper is the James Lighthill Memorial Paper for 2005
Uncontrolled Keywords:Matched asymptotic expansion, finance, option pricing, stochastic volatility, illiquid market.
Subjects:D - G > Game theory, mathematical finance, economics, social and behavioral sciences
Research Groups:Mathematical and Computational Finance Group
ID Code:177
Deposited By:Sam Howison
Deposited On:24 May 2005
Last Modified:20 Jul 2009 14:19

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