Time-Changed Fast Mean-Reverting Stochastic Volatility Models
AbstractWe introduce a class of randomly time-changed fast mean-reverting stochastic volatility (TC-FMR-SV) models. Using spectral theory and singular perturbation techniques, we derive an approximation for the price of any European option in the TC-FMR-SV setting. Three examples of random time-changes are provided and are shown to induce distinct implied volatility surfaces. The key features of the TC-FMR-SV framework are that (i) it is able to incorporate jumps into the price process of the underlying asset (ii) it allows for the leverage effect and (iii) it can accommodate multiple factors of volatility, which operate on different time-scales.
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): 14 (2011)
Issue (Month): 08 ()
Contact details of provider:
Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
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.