The pricing of european options under the constant elasticity of variance with stochastic volatility

Bounghun Bock; Sun Yong Choi; Jeong Hoon Kim

doi:10.1142/S0219477513500041

The pricing of european options under the constant elasticity of variance with stochastic volatility

Bounghun Bock, Sun Yong Choi, Jeong Hoon Kim

Department of Mathematics

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

Abstract

This paper considers a hybrid risky asset price model given by a constant elasticity of variance multiplied by a stochastic volatility factor. A multiscale analysis leads to an asymptotic pricing formula for both European vanilla option and a Barrier option near the zero elasticity of variance. The accuracy of the approximation is provided in a rigorous manner. A numerical experiment for implied volatilities shows that the hybrid model improves some of the well-known models in view of fitting the data for different maturities.

Original language	English
Article number	1350004
Journal	Fluctuation and Noise Letters
Volume	12
Issue number	1
DOIs	https://doi.org/10.1142/S0219477513500041
Publication status	Published - 2013 Mar

Bibliographical note

Funding Information:
We thank anonymous referee for constructive comments and suggestions. The work was supported by National Research Foundation of Korea NRF-2010-0008717 and NRF-2011-013-C00009 and in part by the Ministry of Knowledge Economy and Korea Institute for Advancement in Technology 21 through the Workforce Development Program in Strategic Technology.

All Science Journal Classification (ASJC) codes

Mathematics(all)
Physics and Astronomy(all)

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10.1142/S0219477513500041

Cite this

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The pricing of european options under the constant elasticity of variance with stochastic volatility

Abstract

Bibliographical note

All Science Journal Classification (ASJC) codes

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