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Option Pricing with Semi-Markov Volatility

In: Semi-Markov Models and Applications

Author

Listed:
  • Jacques Janssen

    (Université Libre de Bruxelles)

  • Raimondo Manca

    (Universitá di Chieti)

  • Ernesto Volpe

    (University “La Sapienza”)

Abstract

We present a new extension of the fundamental Black-Scholes formula [1] in stochastic finance with the introduction of SM evolution for the volatility of an initial Black-Scholes model. The construction of this new model starts from the classical Cox-Rubinstein model [2] with one period.

Suggested Citation

  • Jacques Janssen & Raimondo Manca & Ernesto Volpe, 1999. "Option Pricing with Semi-Markov Volatility," Springer Books, in: Jacques Janssen & Nikolaos Limnios (ed.), Semi-Markov Models and Applications, chapter 0, pages 325-333, Springer.
    • Handle: RePEc:spr:sprchp:978-1-4613-3288-6_20
    DOI: 10.1007/978-1-4613-3288-6_20
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