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

DOI10.1155/2010/863585MaRDI QIDQ609727zbMATH OpenOpenAlexWikidataFDO

Authors Alexandre Roch

Publication date 1 December 2010

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

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/0812.2444, https://eudml.org/doc/231078

zbMATH Keywords

viscosity solutionsstochastic volatility modelsOrnstein-Uhlenbeck-type processLévy processes

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)

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.

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Cites work

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Cited in

(6)

• In Pursuit of Zeta-3, by Paul J. Nahin
• Existence and uniqueness of viscosity solutions of an integro-differential equation arising in option pricing
• American option valuation in a stochastic volatility model with transaction costs
• Optimal exercise of American options under time-dependent Ornstein-Uhlenbeck processes
• 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

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