Working Papers

Quantitative Finance




An approximation method for pricing continuous barrier options under multi-asset local stochastic volatility models (Forthcoming in International Journal of Theoretical and Applied Finance.)

Author:Kenichiro Shiraya


This paper presents a new approximation method for pricing multi-asset continuous single barrier options under general local stochastic volatility models. The formula applies an asymptotic expansion technique and an approximation for the distribution of the first exit time of diffusion processes. This method focuses on local stochastic volatility models with unknown characteristic function and transition density function. To the best of our knowledge, our approximation formula is the first to achieve analytic approximations for continuous barrier options prices in this environment. In numerical experiments, we confirm the validity of the formula.