Open Access
2014 Pricing Arithmetic Asian Options under Hybrid Stochastic and Local Volatility
Min-Ku Lee, Jeong-Hoon Kim, Kyu-Hwan Jang
J. Appl. Math. 2014: 1-8 (2014). DOI: 10.1155/2014/784386


Recently, hybrid stochastic and local volatility models have become an industry standard for the pricing of derivatives and other problems in finance. In this study, we use a multiscale stochastic volatility model incorporated by the constant elasticity of variance to understand the price structure of continuous arithmetic average Asian options. The multiscale partial differential equation for the option price is approximated by a couple of single scale partial differential equations. In terms of the elasticity parameter governing the leverage effect, a correction to the stochastic volatility model is made for more efficient pricing and hedging of Asian options.


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Min-Ku Lee. Jeong-Hoon Kim. Kyu-Hwan Jang. "Pricing Arithmetic Asian Options under Hybrid Stochastic and Local Volatility." J. Appl. Math. 2014 1 - 8, 2014.


Published: 2014
First available in Project Euclid: 26 March 2014

zbMATH: 07010752
MathSciNet: MR3166789
Digital Object Identifier: 10.1155/2014/784386

Rights: Copyright © 2014 Hindawi

Vol.2014 • 2014
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