In general, the pricing problems of exotic options in finance do not have analytic solutions under stochastic volatility and so it is hard to compute the option prices or at least it requires much of time to compute them. This paper investigates a semi-analytic pricing method for lookback options in a general stochastic volatility framework. The resultant formula is well connected to the Black-Scholes price that is the first term of a series expansion, which makes computing the option prices relatively efficient. Further, a convergence condition for the expansion is provided with an error bound.
Bibliographical noteFunding Information:
We thank an anonymous referee for valuable comments and suggestions provided on this paper. The research was supported by the National Research Foundation of Korea Grant NRF-2013R1A1A2A10006693 .
All Science Journal Classification (ASJC) codes
- Statistics and Probability
- Statistics, Probability and Uncertainty