Homotopy analysis method for boundary-value problem of turbo warrant pricing under stochastic volatility

Hoi Ying WONG, Mei Choi CHIU

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2 Citations (Scopus)

Abstract

Turbo warrants are liquidly traded financial derivative securities in over-the-counter and exchange markets in Asia and Europe. The structure of turbo warrants is similar to barrier options, but a lookback rebate will be paid if the barrier is crossed by the underlying asset price. Therefore, the turbo warrant price satisfies a partial differential equation (PDE) with a boundary condition that depends on another boundary-value problem (BVP) of PDE. Due to the highly complicated structure of turbo warrants, their valuation presents a challenging problem in the field of financial mathematics. This paper applies the homotopy analysis method to construct an analytic pricing formula for turbo warrants under stochastic volatility in a PDE framework. Copyright © 2013 Hoi Ying Wong and Mei Choi Chiu.
Original languageEnglish
Article number682524
JournalAbstract and Applied Analysis
Volume2013
DOIs
Publication statusPublished - 2013

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Stochastic Volatility
Homotopy Analysis Method
Boundary value problems
Partial differential equations
Pricing
Partial differential equation
Boundary Value Problem
Financial Derivatives
Financial Mathematics
Barrier Options
Costs
Valuation
Boundary conditions
Derivatives

Citation

Wong, H. Y., & Chiu, M. C. (2013). Homotopy analysis method for boundary-value problem of turbo warrant pricing under stochastic volatility. Abstract and Applied Analysis, 2013, art no. 682524.