Option pricing in the model with stochastic volatility driven by Ornstein-Uhlenbeck process. Simulation

DOI10.15559/15-VMSTA43MaRDI QIDQ340795zbMATH OpenFDO

Authors Sergii Kuchuk-Iatsenko, Yuliya S. Mishura

Publication date 15 November 2016

Published in Modern Stochastics. Theory and Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1601.01128

zbMATH Keywords

option pricingOrnstein-Uhlenbeck processstochastic volatilityEuler-Maruyama schemefinancial marketsdiscrete-time approximation

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Martingales with continuous parameter (60G44) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35)

Abstract: We consider a discrete-time approximation of paths of an Ornstein--Uhlenbeck process as a mean for estimation of a price of European call option in the model of financial market with stochastic volatility. The Euler--Maruyama approximation scheme is implemented. We determine the estimates for the option price for predetermined sets of parameters. The rate of convergence of the price and an average volatility when discretization intervals tighten are determined. Discretization precision is analyzed for the case where the exact value of the price can be derived.

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• Pricing the European call option in the model with stochastic volatility driven by Ornstein-Uhlenbeck process. Exact formulas
• The Mathematics of Financial Derivatives

Cited in

(13)

• Stochastic differential equations with generalized stochastic volatility and statistical estimators
• Pricing the European call option in the model with stochastic volatility driven by Ornstein-Uhlenbeck process. Exact formulas
• The rate of convergence of option prices on the asset following a geometric Ornstein-Uhlenbeck process
• European call option pricing under reflected Vasicek-Ornstein-Uhlenbeck model
• Exact simulation of the Ornstein-Uhlenbeck driven stochastic volatility model
• DG framework for pricing European options under one-factor stochastic volatility models
• Rate of convergence of option prices for approximations of the geometric Ornstein-Uhlenbeck process by Bernoulli jumps of prices on assets
• Option pricing under Ornstein-Uhlenbeck stochastic volatility: a linear model
• Moderate deviations for Euler-Maruyama approximation of Hull-White stochastic volatility model
• Drift parameter estimation in stochastic differential equation with multiplicative stochastic volatility
• Option pricing under stochastic volatility: the exponential Ornstein-Uhlenbeck model
• Asymptotics for the Euler-discretized Hull-White stochastic volatility model
• An application of the Malliavin calculus for calculating the precise and approximate prices of options with stochastic volatility

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Uses Software

• Mathematica

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