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A new approach for option pricing under stochastic volatility

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  • Peter Carr

    ()

  • Jian Sun

    ()

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    Abstract

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    File URL: http://hdl.handle.net/10.1007/s11147-007-9014-6
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    Bibliographic Info

    Article provided by Springer in its journal Review of Derivatives Research.

    Volume (Year): 10 (2007)
    Issue (Month): 2 (May)
    Pages: 87-150

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    Handle: RePEc:kap:revdev:v:10:y:2007:i:2:p:87-150

    Contact details of provider:
    Web page: http://www.springerlink.com/link.asp?id=102989

    Related research

    Keywords: Option pricing; Stochastic volatility;

    References

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    1. Chacko, George & Viceira, Luis M., 2003. "Spectral GMM estimation of continuous-time processes," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 259-292.
    2. Paolo Baldi & Lucia Caramellino & Maria Gabriella Iovino, 1999. "Pricing General Barrier Options: A Numerical Approach Using Sharp Large Deviations," Mathematical Finance, Wiley Blackwell, vol. 9(4), pages 293-321.
    3. Jones, Christopher S., 2003. "The dynamics of stochastic volatility: evidence from underlying and options markets," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 181-224.
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    5. Ahn, Dong-Hyun & Gao, Bin, 1999. "A Parametric Nonlinear Model of Term Structure Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 721-62.
    6. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
    7. Marc Romano & Nizar Touzi, 1997. "Contingent Claims and Market Completeness in a Stochastic Volatility Model," Mathematical Finance, Wiley Blackwell, vol. 7(4), pages 399-412.
    8. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1980. " An Analysis of Variable Rate Loan Contracts," Journal of Finance, American Finance Association, vol. 35(2), pages 389-403, May.
    9. Peter D Spencer, . "Coupon Bond Valuation with a Non-Affine Discount Yield Model," Discussion Papers 03/16, Department of Economics, University of York.
    10. Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January.
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    Citations

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    Cited by:
    1. Robert Jarrow & Younes Kchia & Martin Larsson & Philip Protter, 2013. "Discretely sampled variance and volatility swaps versus their continuous approximations," Finance and Stochastics, Springer, vol. 17(2), pages 305-324, April.
    2. Jan Baldeaux & Dale Roberts, 2012. "Quasi-Monte Carol Methods for the Heston Model," Research Paper Series 307, Quantitative Finance Research Centre, University of Technology, Sydney.
    3. Nicole Branger & Antje Mahayni, 2011. "Tractable hedging with additional hedge instruments," Review of Derivatives Research, Springer, vol. 14(1), pages 85-114, April.
    4. repec:wyi:wpaper:002033 is not listed on IDEAS
    5. Lingjiong Zhu, 2013. "Optimal Strategies for a Long-Term Static Investor," Papers 1311.6179, arXiv.org, revised May 2014.
    6. Jan Baldeaux & Alexander Badran, 2012. "Consistent Modeling of VIX and Equity Derivatives Using a 3/2 plus Jumps Model," Papers 1203.5903, arXiv.org, revised Aug 2012.
    7. Gabriel G. Drimus, 2012. "Options on realized variance by transform methods: a non-affine stochastic volatility model," Quantitative Finance, Taylor & Francis Journals, vol. 12(11), pages 1679-1694, November.
    8. Andrey Itkin, 2013. "New solvable stochastic volatility models for pricing volatility derivatives," Review of Derivatives Research, Springer, vol. 16(2), pages 111-134, July.
    9. Gabriel Drimus & Walter Farkas, 2013. "Local volatility of volatility for the VIX market," Review of Derivatives Research, Springer, vol. 16(3), pages 267-293, October.
    10. Eckhard Platen & Renata Rendek, 2012. "The Affine Nature of Aggregate Wealth Dynamics," Research Paper Series 322, Quantitative Finance Research Centre, University of Technology, Sydney.
    11. Maxim Bichuch & Stephan Sturm, 2011. "Portfolio Optimization under Convex Incentive Schemes," Papers 1109.2945, arXiv.org, revised Oct 2013.
    12. Jan Baldeaux & Man Chung Fung & Katja Ignatieva & Eckhard Platen, 2014. "A Hybrid Model for Pricing and Hedging of Long Dated Bonds," Research Paper Series 343, Quantitative Finance Research Centre, University of Technology, Sydney.
    13. Carole Bernard & Zhenyu Cui & Don McLeish, 2013. "On the martingale property in stochastic volatility models based on time-homogeneous diffusions," Papers 1310.0092, arXiv.org, revised Jul 2014.
    14. Leunglung Chan & Eckhard Platen, 2010. "Exact Pricing and Hedging Formulas of Long Dated Variance Swaps under a $3/2$ Volatility Model," Papers 1007.2968, arXiv.org, revised Jan 2011.
    15. repec:wyi:wpaper:002038 is not listed on IDEAS
    16. Andrey Itkin & Peter Carr, 2010. "Pricing swaps and options on quadratic variation under stochastic time change models—discrete observations case," Review of Derivatives Research, Springer, vol. 13(2), pages 141-176, July.

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