Perturbation methods for pricing options on realised variance and leveraged ETF

Seminar in Applied Mathematics and Statistics. 

SPEAKER:  Marcelo Alvisio, University of Chicago

ABSTRACT:  Consider a family of models written in terms of a parameter epsilon, which result from perturbing a model where option prices can be computed exactly.  We compute option prices as a series in epsilon using martingales.  When a series expansion for the option price is available, we derive an expansion for the implied volatility.  We find applications to contracts on realised variance and leveraged ETF.