March 11th, 2005, 12:30 pm
Small vol is tricky for the numerics but is quite straightforward for the asymptotics (there'll be a regime around ATMF where you'll have to zoom in).Hagan, P, Kumar, D, Lesniewski, A & Woodward, D 2002 Managing smile risk. Wilmott magazine September 2002Rasmussen, H & Wilmott, P 2002 Asymptotic analysis of stochastic volatility models. In "New Directions in Mathematical Finance," Ed. Wilmott, P & Rasmussen, H, John Wiley & SonsWhalley, AE & Wilmott, P 1997 An asymptotic analysis of an optimal hedging model for option pricing with transaction costs. Mathematical Finance 7 307-324P