A REDUCED BASIS METHOD FOR OPTION PRICING WITH CONSTANT ELACTICITY OF VARIANCE

‎Black-Scholes pricing theory is one of the most important rule to calculate of option price‎. ‎Various methods have been introduced for option pricing to overcome to the shortcoming of Black-Scholes model. ‎In this paper, ‎we investigate a reduced basis method and focus on basis functions constructed from a sequence of Black-Scholes solutions with different volatilities to approximate solution of rising equations from option pricing modelling under the constant elasticity of variance model. ‎The main goal of this paper is to present the details of the basis functions and aspects of the basis function under the constant elasticity of variance model. ‎Then, ‎the efficiency of the method presented by numerical example.