Path dependent volatility
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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Volume (Year): 31 (2008)
Issue (Month): 1 (May)
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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.:
- Andrea, Pascucci, 2007.
"Free boundary and optimal stopping problems for American Asian options,"
4766, University Library of Munich, Germany.
- Andrea Pascucci, 2008. "Free boundary and optimal stopping problems for American Asian options," Finance and Stochastics, Springer, vol. 12(1), pages 21-41, January.
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- Andrea Pascucci & Paolo Foschi, 2005. "Calibration of the Hobson&Rogers model: empirical tests," Finance 0509020, EconWPA.
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- David G. Hobson & L. C. G. Rogers, 1998. "Complete Models with Stochastic Volatility," Mathematical Finance, Wiley Blackwell, vol. 8(1), pages 27-48.
- Rama Cont, 2006. "Model uncertainty and its impact on the pricing of derivative instruments," Post-Print halshs-00002695, HAL.
- 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.
- Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
- Andrea Pascucci & Marco Di Francesco, 2005. "On the complete model with stochastic volatility by Hobson and Rogers," Finance 0503013, EconWPA.
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