Li, Minqiang (2014): Analytic Approximation of FiniteMaturity Timer Option Prices.

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Abstract
We develop an approximation technique for pricing finitematurity timer options under Hestonlike stochastic volatility models. By approximating the distributions of the accumulated variance and the random variance budget exceeding time, we obtain analytic expressions for timer option prices under zero correlation. For nonzero correlation, we use a simple linear combination approximation which matches the asymptotic correlation behavior. Numerical analysis using the Heston model shows that the method is fairly accurate, especially when the volatility of variance is small or the maximum maturity is large.
Item Type:  MPRA Paper 

Original Title:  Analytic Approximation of FiniteMaturity Timer Option Prices 
English Title:  Analytic Approximation of FiniteMaturity Timer Option Prices 
Language:  English 
Keywords:  FiniteMaturity Timer Options; Analytic Approximation; Perturbation; Hitting time; Integrated Diffusion 
Subjects:  C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing ; Trading Volume ; Bond Interest Rates G  Financial Economics > G1  General Financial Markets > G13  Contingent Pricing ; Futures Pricing 
Item ID:  54597 
Depositing User:  Minqiang Li 
Date Deposited:  19 Mar 2014 15:40 
Last Modified:  29 Sep 2019 11:49 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/54597 