The tool of Asymptotic analysis in Quantitative Finance

Question

Explain the tool of Asymptotic analysis in Quantitative Finance.

Answer 1

Asymptotic analysis: It is an incredibly useful technique, utilized in most branches of applicable mathematics, but till recently almost unknown in finance. The idea is simple to get approximate solutions to a complicated problem through exploiting parameters or variables which are either large or small, or particular in some way. For illustration there are simple approximations for vanilla option values close to expiry.