Homotopy Analysis Method for Boundary-Value Problem of Turbo Warrant Pricing under Stochastic Volatility

• Main Authors: Hoi Ying Wong, Mei Choi Chiu
• Format: Article
• Language: English
• Published: Hindawi Limited 2013-01-01
• Series: Abstract and Applied Analysis
• Online Access: http://dx.doi.org/10.1155/2013/682524

Turbo warrants are liquidly traded financial derivative securities in over-the-counter and exchange markets in Asia and Europe. The structure of turbo warrants is similar to barrier options, but a lookback rebate will be paid if the barrier is crossed by the underlying asset price. Therefore, the turbo warrant price satisfies a partial differential equation (PDE) with a boundary condition that depends on another boundary-value problem (BVP) of PDE. Due to the highly complicated structure of turbo warrants, their valuation presents a challenging problem in the field of financial mathematics. This paper applies the homotopy analysis method to construct an analytic pricing formula for turbo warrants under stochastic volatility in a PDE framework.