Target volatility option pricing in lognormal fractional SABR model
QUANTITATIVE FINANCE(2019)
摘要
We examine in this article the pricing of target volatility options in the lognormal fractional SABR model. A decomposition formula of Ito's calculus yields an approximation formula for the price of a target volatility option in small time by the technique of freezing the coefficient. A decomposition formula in terms of Malliavin derivatives is also provided. Alternatively, we also derive closed form expressions for a small volatility of volatility expansion of the price of a target volatility option. Numerical experiments show the accuracy of the approximations over a reasonably wide range of parameters.
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关键词
Lognormal fractional SABR model,Decomposition formula,Target volatility option,Small volatility of volatility approximation
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