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

Abstract EN

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.