Singular Perturbations in Option Pricing

  title={Singular Perturbations in Option Pricing},
  author={George Papanicolaou and Jean-Pierre Fouque and Knut S\olna and Ronnie Sircar},
  journal={SIAM Journal of Applied Mathematics},
After the celebrated Black-Scholes formula for pricing call options under constant volatility, the need for more general nonconstant volatility models in financial mathematics has been the motivation of numerous works during the Eighties and Nineties. In particular, a lot of attention has been paid to stochastic volatility models where the volatility is randomly fluctuating driven by an additional Brownian motion. We have shown in [2, 3] that, in the presence of a separation of time scales… CONTINUE READING
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