A Note on Option Pricing with the Use of Discrete-Time Stochastic Volatility Processes
In this paper we show that in the lognormal discrete-time stochastic volatility model with predictable conditional expected returns, the conditional expected value of the discounted payoff of a European call option is infinite. Our empirical illustration shows that the characteristics of the predictive distributions of the discounted payoffs, obtained using Monte Carlo methods, do not indicate directly that the expected discounted payoffs are infinite.
Volume (Year): 1 (2009)
Issue (Month): 1 (March)
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- George J. Jiang & Pieter J. van der Sluis, 1999.
"Index Option Pricing Models with Stochastic Volatility and Stochastic Interest Rates,"
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- Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June. Full references (including those not matched with items on IDEAS)
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