Viscosity solutions and American option pricing in a stochastic volatility model of the Ornstein-Uhlenbeck type

DOI10.1155/2010/863585zbMATH Open1211.91241arXiv0812.2444OpenAlexW2068457956WikidataQ58652725 ScholiaQ58652725MaRDI QIDQ609727FDOQ609727

Alexandre Roch

Publication date: 1 December 2010

Published in: Journal of Probability and Statistics (Search for Journal in Brave)

Abstract: In this paper, we study the valuation of American type derivatives in the stochastic volatility model of Barndorff-Nielsen and Shephard (2001). We characterize the value of such derivatives as the unique viscosity solution of an integral-partial differential equation when the payoff function satisfies a Lipschitz condition.

Full work available at URL: https://arxiv.org/abs/0812.2444

zbMATH Keywords

[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=L%EF%BF%BD%EF%BF%BDvy+processes&go=Go L��vy processes]viscosity solutionsstochastic volatility modelsOrnstein-Uhlenbeck-type process

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Derivative securities (option pricing, hedging, etc.) (91G20) Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70) Financial applications of other theories (91G80)

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Cited In (3)

• Mean-variance hedging based on an incomplete market with external risk factors of non-Gaussian OU processes
• Viscosity solutions and the pricing of European-style options in a Markov-modulated exponential Lévy model
• Existence and Uniqueness of Viscosity Solutions of an Integro-differential Equation Arising in Option Pricing

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