Pricing Partners, part of Thomson Reuters, the world leader in OTC derivatives pricing analytics, mathematical models and independent valuation, is pleased to announce the publication of a White Paper on “Weak approximation of Averaged Diffusion Processes”. The research has been joined work between Dr. Mohammed Miri, Head of Research and Development at Pricing Partners and Professor E. Gobet from Ecole Polytechnique and will be published on one of the most famous journals “Stochastic Processes and their Applications”.
The paper develops an innovative closed formula to compute Asian and baskets options on general local volatility models. It derives smart expansion results in order to approximate the law of the average of the marginal of diffusion processes. The approximation method is based on a normal or lognormals proxys. The paper also provides non asymptotic error bounds which handle the discrete and continuous case as well.
Dr. Mohammed Miri, Head of Research and Development at Pricing Partners comments, “The closed formulas from the paper will be added to the award winning solution, Price-it Library. Clients with products such as Asian options should see a huge improvement with very fast and reliable closed formulas”.
Eric Benhamou, Managing Director at Pricing Partners comments “This is a great work. At Pricing Partners, we are very keen to push the limit of our analytics. This new research confirms our thorough leadership on innovation in financial mathematics and continues strengthening the value proposal of our solution. I thank Mohammed for his inventiveness and brilliant ideas.”