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A new, simple algorithm of order 2 is presented to approximate weakly stochastic differential equations. It is then applied to the problem of pricing Asian options under the Heston stochastic volatility model. 2000 Mathematics Subject Classification, 65C30, 65C05.
This paper provides model‐independent lower bounds for prices of arithmetic Asian options expressed through prices of European call options on the same underlying that are assumed to be observable in the market, and the corresponding subreplicating strategy is identified. The first bound relies...
The problem of option pricing is treated using the Stochastic Volatility (SV) model: the volatility of the underlying asset is a function of an exogenous stochastic process, typically assumed to be mean‐reverting. Assuming that only discrete past stock information is available, an interacting...
A firm‐value model similar to the one proposed by Black and Cox (1976) is considered. Instead of assuming a constant and known default boundary, the default boundary is an unobserved stochastic process. This process has a Brownian component, reflecting the influence of uncertain effects on the...
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