A Comparison of q-optimal Option Prices in a Stochastic Volatility Model with Correlation

Vicky Henderson, David Hobson, Sam Howison and Tino Kluge

OFRC Working Papers Series from Oxford Financial Research Centre

Abstract: This paper investigates option prices in an incomplete stochastic volatility model with correlation. In a general setting, we prove an ordering result which says that prices for European options with convex payoffs are decreasing in the market price of volatility risk. As an example, and as our main motivation, we investigate option pricing under the class of q-optimal pricing measures. Using the ordering result, we prove comparison theorems between option prices under the minimal martingale, minimal entropy and variance-optimal pricing measures. As a concrete example, we specialise to a variant of the Heston model. For this example we are able to deduce that option prices are decreasing in the parameter q.

Date: 2003
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.finance.ox.ac.uk/file_links/finecon_papers/2003mf02.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.finance.ox.ac.uk:80 (No such host is known. )

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sbs:wpsefe:2003mf02

Access Statistics for this paper

More papers in OFRC Working Papers Series from Oxford Financial Research Centre Contact information at EDIRC.
Bibliographic data for series maintained by Maxine Collett ().