Computing the CEV option pricing formula using the semiclassical approximation of path integral

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Authors	ARANEDA Axel Alejandro VILLENA Marcelo J.
Year of publication	2021
Type	Article in Periodical
Magazine / Source	Journal of Computational and Applied Mathematics
MU Faculty or unit	Faculty of Economics and Administration
Citation
Web	https://www.sciencedirect.com/science/article/pii/S0377042720305355?pes=vor
Doi	http://dx.doi.org/10.1016/j.cam.2020.113244
Keywords	Option pricing; Constant elasticity of variance; Path integral; Semiclassical approximation; Numerical methods
Attached files	1-s2.0-S0377042720305355-main-3.pdf
Description	The CEV model allows volatility to change with the underlying price, capturing a basic empirical regularity very relevant for option pricing, such as the volatility smile. Nevertheless, the standard CEV solution, using the non-central chi-square approach, still presents high computational times. In this paper, the CEV option pricing formula is computed using the semiclassical approximation of Feynman's path integral. Our simulations show that the method is quite efficient and accurate compared to the standard CEV solution considering the pricing of European call options.
Related projects:	Postdoc2MUNI