Asymptotic Expansion of Risk-Neutral Pricing Density
AbstractA new method for pricing contingent claims based on an asymptotic expansion of the dynamics of the pricing density is introduced. The expansion is conducted in a preferred coordinate frame, in which the pricing density looks stationary. The resulting asymptotic Kolmogorov-backward-equation is approximated by using a complete set of orthogonal Hermite-polynomials. The derived model is calibrated and tested on a collection of 1075 European-style ‘Deutscher Aktienindex’ (DAX) index options and is shown to generate very precise option prices and a more accurate implied volatility surface than conventional methods. View Full-Text
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Mazzoni, T. Asymptotic Expansion of Risk-Neutral Pricing Density. Int. J. Financial Stud. 2018, 6, 30.
Mazzoni T. Asymptotic Expansion of Risk-Neutral Pricing Density. International Journal of Financial Studies. 2018; 6(1):30.Chicago/Turabian Style
Mazzoni, Thomas. 2018. "Asymptotic Expansion of Risk-Neutral Pricing Density." Int. J. Financial Stud. 6, no. 1: 30.
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