Small-time asymptotics for fast mean-reverting stochastic volatility models (Q453246): Difference between revisions
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The authors study stochastic volatility option-pricing models, where the maturity is small, but still large compared to the mean-reversion time of the stochastic volatility factor. The problem falls in the class of averaging or homogenization problems for nonlinear HJB-type equations where the fast variable lives in a noncompact space. The authors develop a general argument based on viscosity solutions which they apply to the two regimes studied in the paper. They derive a large deviation principle and deduce asymptotic prices for out-of-the-money call and put options, and their corresponding implied volatilities. | |||
Property / review text: The authors study stochastic volatility option-pricing models, where the maturity is small, but still large compared to the mean-reversion time of the stochastic volatility factor. The problem falls in the class of averaging or homogenization problems for nonlinear HJB-type equations where the fast variable lives in a noncompact space. The authors develop a general argument based on viscosity solutions which they apply to the two regimes studied in the paper. They derive a large deviation principle and deduce asymptotic prices for out-of-the-money call and put options, and their corresponding implied volatilities. / rank | |||
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Property / reviewed by | |||
Property / reviewed by: Tommi Sottinen / rank | |||
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Property / Mathematics Subject Classification ID: 60F10 / rank | |||
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Property / Mathematics Subject Classification ID | |||
Property / Mathematics Subject Classification ID: 91B70 / rank | |||
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Property / Mathematics Subject Classification ID | |||
Property / Mathematics Subject Classification ID: 49L25 / rank | |||
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Property / zbMATH DE Number | |||
Property / zbMATH DE Number: 6083943 / rank | |||
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Property / zbMATH Keywords | |||
stochastic volatility | |||
Property / zbMATH Keywords: stochastic volatility / rank | |||
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multi-scale asymptotic | |||
Property / zbMATH Keywords: multi-scale asymptotic / rank | |||
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large deviation principle | |||
Property / zbMATH Keywords: large deviation principle / rank | |||
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implied volatility smile/skew | |||
Property / zbMATH Keywords: implied volatility smile/skew / rank | |||
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Revision as of 11:56, 30 June 2023
scientific article
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English | Small-time asymptotics for fast mean-reverting stochastic volatility models |
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Small-time asymptotics for fast mean-reverting stochastic volatility models (English)
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19 September 2012
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The authors study stochastic volatility option-pricing models, where the maturity is small, but still large compared to the mean-reversion time of the stochastic volatility factor. The problem falls in the class of averaging or homogenization problems for nonlinear HJB-type equations where the fast variable lives in a noncompact space. The authors develop a general argument based on viscosity solutions which they apply to the two regimes studied in the paper. They derive a large deviation principle and deduce asymptotic prices for out-of-the-money call and put options, and their corresponding implied volatilities.
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stochastic volatility
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multi-scale asymptotic
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large deviation principle
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implied volatility smile/skew
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