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Turbo Warrants under Hybrid Stochastic and Local Volatility

Author

Listed:
  • Min-Ku Lee
  • Ji-Hun Yoon
  • Jeong-Hoon Kim
  • Sun-Hwa Cho

Abstract

This paper considers the pricing of turbo warrants under a hybrid stochastic and local volatility model. The model consists of the constant elasticity of variance model incorporated by a fast fluctuating Ornstein‐Uhlenbeck process for stochastic volatility. The sensitive structure of the turbo warrant price is revealed by asymptotic analysis and numerical computation based on the observation that the elasticity of variance controls leverage effects and plays an important role in characterizing various phases of volatile markets.

Suggested Citation

  • Min-Ku Lee & Ji-Hun Yoon & Jeong-Hoon Kim & Sun-Hwa Cho, 2014. "Turbo Warrants under Hybrid Stochastic and Local Volatility," Abstract and Applied Analysis, John Wiley & Sons, vol. 2014(1).
    • Handle: RePEc:wly:jnlaaa:v:2014:y:2014:i:1:n:407145
    DOI: 10.1155/2014/407145
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    References listed on IDEAS

    as
    1. Fouque,Jean-Pierre & Papanicolaou,George & Sircar,Ronnie & Sølna,Knut, 2011. "Multiscale Stochastic Volatility for Equity, Interest Rate, and Credit Derivatives," Cambridge Books, Cambridge University Press, number 9780521843584.
    2. Sun-Yong Choi & Jean-Pierre Fouque & Jeong-Hoon Kim, 2013. "Option pricing under hybrid stochastic and local volatility," Quantitative Finance, Taylor & Francis Journals, vol. 13(8), pages 1157-1165, July.
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    6. Min-Ku Lee & Jeong-Hoon Kim & Kyu-Hwan Jang, 2014. "Pricing Arithmetic Asian Options under Hybrid Stochastic and Local Volatility," Journal of Applied Mathematics, Hindawi, vol. 2014, pages 1-8, January.
    7. Min-Ku Lee & Jeong-Hoon Kim & Kyu-Hwan Jang, 2014. "Pricing Arithmetic Asian Options under Hybrid Stochastic and Local Volatility," Journal of Applied Mathematics, John Wiley & Sons, vol. 2014(1).
    8. 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 637-654, May-June.
    9. Hoi Ying Wong & Chun Man Chan, 2008. "Turbo warrants under stochastic volatility," Quantitative Finance, Taylor & Francis Journals, vol. 8(7), pages 739-751.
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