The validity of an approximation formula for European option prices under a general stochastic volatility model is proved in the light of the Edgeworth expansion for ergodic diffusions. The asymptotic expansion is around the Black-Scholes price and is uniform in bounded payoff functions. The result provides a validation of an existing singular perturbation expansion formula for the fast mean reverting stochastic volatility model.
No takes yet. Share an insight, caveat, or question.
Masaaki Fukasawa (2011) studied this question.
Synapse has enriched 5 related papers. Consider them for comparative context: