An Asymptotic Expansion Formula for Up-and-Out Barrier Option Price under Stochastic Volatility Model

Abstract

This paper derives a new semi closed-form approximation formula for pricing an up-and-out barrier option under a certain type of stochastic volatility model including SABR model by applying a rigorous asymptotic expansion method developed by Kato, Takahashi and Yamada (2012). We also demonstrate the validity of our approximation method through numerical examples.

arXiv comment9 pages