Bounds on European Option Prices under Stochastic Volatility
AbstractIn this paper we consider the range of prices consistent with no arbitrage for European options in a general stochastic volatility model. We give conditions under which infimum respectively the supremum of the possible option prices are equal to the intrinsic value of the option or to the current price of the stock and show that these conditions are satisfied in most of the stochastic volatility models from the financial literature.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 405.
Date of creation: Jul 1997
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- A. Dudenhausen & Erik Schlögl & L. Schlögl, 1999.
"Robustness of Gaussian Hedges and the Hedging of Fixed Income Derivatives,"
Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney
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- Touzi, Nizar, 2000. "Direct characterization of the value of super-replication under stochastic volatility and portfolio constraints," Stochastic Processes and their Applications, Elsevier, Elsevier, vol. 88(2), pages 305-328, August.
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