Exact Pricing With Stochastic Volatility And Jumps
AbstractA stochastic volatility jump-diffusion model for pricing derivatives with jumps in both spot return and volatility underlying dynamics is presented. This model admits, in the spirit of Heston, a closed-form solution for European-style options. The structure of the model is also suitable to explicitly obtain the fair delivery price for variance swaps. To evaluate derivatives whose value does not admit a closed-form expression, a methodology based on an "exact algorithm", in the sense that no discretization of equations is required, is developed and applied to barrier options. Goodness of pricing algorithm is tested using DJ Euro Stoxx 50 market data for European options. Finally, the algorithm is applied to compute prices and Greeks for barrier options and to determine the fair delivery prices for variance swaps.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.
Volume (Year): 13 (2010)
Issue (Month): 06 ()
Contact details of provider:
Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).
If references are entirely missing, you can add them using this form.