In this paper, we consider the pricing of vulnerable options when the underlying asset follows a stochastic volatility model. We use multiscale asymptotic analysis to derive an analytic approximation formula for the price of the vulnerable options and study the stochastic volatility effect on the option price. A numerical experiment result is presented to demonstrate our findings graphically.
Bibliographical noteFunding Information:
We thank an anonymous referee for valuable comments and suggestions provided on this paper. The research of J.-H. Kim was supported by the National Research Foundation of Korea NRF-2013R1A1A2A10006693 .
All Science Journal Classification (ASJC) codes
- Applied Mathematics