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Approximate solution to a hybrid model with stochastic volatility: a singular-perturbation strategy

By T Fatima, L Grzelak and H Hendriks

Abstract

We study a hybrid model of Schobel-Zhu-Hull-White-type from a singular-perturbation-analysis perspective. The merit of the paper is twofold: On one hand, we find boundary conditions for the deterministic non-linear degenerate parabolic partial differential equation for the evolution of the stock price. On the other hand, we combine two-scales regular- and singular-perturbation techniques to find an approximate solution to the pricing PDE. The aim is to produce an expression that can be evaluated numerically very fast

Topics: Discrete, None/Other, Finance
Year: 2009
OAI identifier: oai:generic.eprints.org:595/core70

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