Complete Models with Stochastic Volatility
Abstract
The paper proposes an original class of models for the continuous-time price process of a financial security with nonconstant volatility. The idea is to define instantaneous volatility in terms of exponentially weighted moments of historic log-price. The instantaneous volatility is therefore driven by the same stochastic factors as the price process, so that, unlike many other models of nonconstant volatility, it is not necessary to introduce additional sources of randomness. Thus the market is complete and there are unique, preference-independent options prices. Copyright Blackwell Publishers 1998.Download Info
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Bibliographic Info
Article provided by Wiley Blackwell in its journal Mathematical Finance.
Volume (Year): 8 (1998)
Issue (Month): 1 ()
Pages: 27-48
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627
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