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Approximate option pricing formula for Barndorff-Nielsen and Shephard model

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  • Takuji Arai

Abstract

For the Barndorff-Nielsen and Shephard model, we present approximate expressions of call option prices based on the decomposition formula developed by Arai (2021). Besides, some numerical experiments are also implemented to make sure how effective our approximations are.

Suggested Citation

  • Takuji Arai, 2021. "Approximate option pricing formula for Barndorff-Nielsen and Shephard model," Papers 2104.10877, arXiv.org.
    • Handle: RePEc:arx:papers:2104.10877
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    References listed on IDEAS

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    1. Elisa Alòs & Rafael De Santiago & Josep Vives, 2015. "Calibration Of Stochastic Volatility Models Via Second-Order Approximation: The Heston Case," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(06), pages 1-31.
    2. Elisa Nicolato & Emmanouil Venardos, 2003. "Option Pricing in Stochastic Volatility Models of the Ornstein‐Uhlenbeck type," Mathematical Finance, Wiley Blackwell, vol. 13(4), pages 445-466, October.
    3. Takuji Arai & Ryoichi Suzuki, 2015. "Local risk-minimization for Lévy markets," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-28.
    4. Raúl Merino & Josep Vives, 2017. "Option Price Decomposition in Spot-Dependent Volatility Models and Some Applications," International Journal of Stochastic Analysis, Hindawi, vol. 2017, pages 1-16, July.
    5. Takuji Arai & Yuto Imai & Ryoichi Suzuki, 2017. "Local risk-minimization for Barndorff-Nielsen and Shephard models," Finance and Stochastics, Springer, vol. 21(2), pages 551-592, April.
    6. R. Merino & J. Pospíšil & T. Sobotka & J. Vives, 2018. "Decomposition Formula For Jump Diffusion Models," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 21(08), pages 1-36, December.
    7. R. Merino & J. Pospíšil & T. Sobotka & J. Vives, 2018. "Decomposition Formula For Jump Diffusion Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(08), pages 1-36, December.
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