An Approximated European Option Price under Stochastic Elasticity of Variance using Mellin Transforms

Abstract

In this paper, we derive a closed-form formula of a second- order approximation for a European corrected option price under stochas- tic elasticity of variance model mentioned in Kim et al. (2014) [1] [J.-H. Kim, J Lee, S.-P. Zhu, S.-H. Yu, A multiscale correction to the Black- Scholes formula, Appl. Stoch. Model. Bus. 30 (2014)]. To find the explicit-form correction to the option price, we use Mellin transform ap- proaches.