Analytically tractable stochastic stock price models. (Q434149)

The author of this book is among the most active researchers in the area of stochastic financial modelling. He has published a long list of significant papers, has given courses for graduate students and professionals. It is good and useful to have all this material systematically presented in a book form. The main goal is to study in detail the distribution and the densities of a variety of stochastic processes used to model stock prices, option pricing functions and implied volatilities. This includes, for example, variations of the classical Black-Scholes model. However the emphasis is on models with stochastic volatility such Hull-White model, Stein-Stein model and Heston model. The volatility in these three models involves, in this order, the geometric Brownian motion, the Ornstein-Uhlenbeck process and the Cox-Ingersoll-Ross process. To perform an asymptotic analysis of the distributions and their densities is far from a trivial task. The author uses different ideas and solid tools from analysis, probability, martingales and stochastic calculus in order to find explicit representation of a specific density, and the next, its asymptotic behavior. It is expected that everybody studying and/or working in stochastic financial modelling will find useful the material in the first four chapters dealing with volatility processes, models with stochastic volatility, mixing distributions related to realized volatility and integral transforms of distribution densities. The next chapters already exhibit what is called asymptotic analysis of mixing distributions, of stock price distributions, of option pricing functions and of implied volatility. This is done for different stochastic financial models, some of them are mentioned above. Somewhere in between, there is a chapter dealing with regularly varying functions and Pareto-type distributions. Stochastic models with or without moment explosion are studied. In general the text is well written and the material well structured. The author gives clear formulations of all statements. Some of them are followed by complete proofs; if not, there are appropriate references either in the text or in the notes at the end of each chapter. There is no need to make a direct comparison of this book with the many others available in the market. Two things, both positive, are obvious: (1) this book brings to the reader a new, fresh and original material; (2) the book represents a good portion of the recent progress in studying complex stochastic financial models.