First-Order Asymptotics of Path-Dependent Derivatives in Multiscale Stochastic Volatility Environment

In this paper, we extend the first-order asymptotics analysis of Fouque et al. to general path-dependent financial derivatives using Dupire's functional Ito calculus. The main conclusion is that the market group parameters calibrated to vanilla options can be used to price to the same order exotic, path-dependent derivatives as well. Under general conditions, the first-order condition is represented by a conditional expectation that could be numerically evaluated. Moreover, if the path-dependenc...