Pricing the European call option in the model with stochastic volatility driven by Ornstein-Uhlenbeck process. Exact formulas
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Abstract: We consider the Black--Scholes model of financial market modified to capture the stochastic nature of volatility observed at real financial markets. For volatility driven by the Ornstein--Uhlenbeck process, we establish the existence of equivalent martingale measure in the market model. The option is priced with respect to the minimal martingale measure for the case of uncorrelated processes of volatility and asset price, and an analytic expression for the price of European call option is derived. We use the inverse Fourier transform of a characteristic function and the Gaussian property of the Ornstein--Uhlenbeck process.
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Cited in
(18)- Option Pricing in Stochastic Volatility Models of the Ornstein‐Uhlenbeck type
- Option pricing under stochastic volatility: the exponential Ornstein-Uhlenbeck model
- Stochastic Volatility With an Ornstein–Uhlenbeck Process: An Extension
- European call option pricing under reflected Vasicek-Ornstein-Uhlenbeck model
- European option pricing model with generalized Ornstein-Uhlenbeck process under stochastic earning yield and stochastic dividend yield
- Symmetry and Bates' rule in Ornstein-Uhlenbeck stochastic volatility models
- An application of the Malliavin calculus for calculating the precise and approximate prices of options with stochastic volatility
- Option pricing under Ornstein-Uhlenbeck stochastic volatility: a linear model
- Stochastic representation and path properties of a fractional Cox-Ingersoll-Ross process
- Fractional Cox-Ingersoll-Ross process with small Hurst indices
- A dual martingale method for the option pricing of the stock prices following the O-U process
- Option pricing in the model with stochastic volatility driven by Ornstein-Uhlenbeck process. Simulation
- scientific article; zbMATH DE number 2169711 (Why is no real title available?)
- European call option issued on a bond governed by a geometric or a fractional geometric Ornstein-Uhlenbeck process
- Pricing lookback options on the stocks driven by exponential Ornstein-Uhlenbeck process
- Drift parameter estimation in stochastic differential equation with multiplicative stochastic volatility
- Option pricing with fractional stochastic volatility and discontinuous payoff function of polynomial growth
- Stochastic differential equations with generalized stochastic volatility and statistical estimators
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