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Path dependent volatility

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Author Info
Pascucci, Andrea
Foschi, Paolo

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Abstract

We propose a general class of non-constant volatility models with dependence on the past. The framework includes path-dependent volatility models such as that by Hobson&Rogers and also path dependent contracts such as options of Asian style. A key feature of the model is that market completeness is preserved. Some empirical analysis, based on the comparison with the performance of standard local volatility and Heston models, shows the effectiveness of the path dependent volatility.

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File URL: http://mpra.ub.uni-muenchen.de/973/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 973.

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Date of creation: 30 Nov 2006
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Handle: RePEc:pra:mprapa:973

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Related research
Keywords: option pricing stochastic volatility path dependent option

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Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Andrea, Pascucci, 2007. "Free boundary and optimal stopping problems for American Asian options," MPRA Paper 4766, University Library of Munich, Germany. [Downloadable!]
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  2. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring. [Downloadable!] (restricted)
  3. Andrea Pascucci & Marco Di Francesco, 2005. "On the complete model with stochastic volatility by Hobson and Rogers," Finance 0503013, EconWPA. [Downloadable!]
  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. [Downloadable!] (restricted)
  5. Andrea Pascucci & Paolo Foschi, 2005. "Calibration of the Hobson&Rogers model: empirical tests," Finance 0509020, EconWPA. [Downloadable!]
  6. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(2), pages 327-43. [Downloadable!] (restricted)
  7. Rama Cont, 2006. "Model Uncertainty And Its Impact On The Pricing Of Derivative Instruments," Mathematical Finance, Blackwell Publishing, vol. 16(3), pages 519-547. [Downloadable!] (restricted)
  8. Carl Chiarella & Oh-Kang Kwon, 2000. "A Complete Stochastic Volatility Model in the HJM Framework," Research Paper Series 43, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  9. Carol Alexander & Leonardo M. Nogueira, 2006. "Hedging Options with Scale-Invariant Models," ICMA Centre Discussion Papers in Finance icma-dp2006-03, School of Business, Reading University. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrea, Pascucci, 2007. "Free boundary and optimal stopping problems for American Asian options," MPRA Paper 4766, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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