Option Pricing with Semi-Markov Volatility

Jacques Janssen, Raimondo Manca and Ernesto Volpe
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Jacques Janssen: Université Libre de Bruxelles
Raimondo Manca: Universitá di Chieti
Ernesto Volpe: University “La Sapienza”

Chapter Chapter 20 in Semi-Markov Models and Applications, 1999, pp 325-333 from Springer

Abstract: Abstract We present a new extension of the fundamental Black-Scholes formula [1] in stochastic finance with the introduction of SM evolution for the volatility of an initial Black-Scholes model. The construction of this new model starts from the classical Cox-Rubinstein model [2] with one period.

Keywords: Black-Scholes formula; risk neutral measure; stochastic volatility; Markov chain; semi-Markov process; European call option pricing. (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4613-3288-6_20

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DOI: 10.1007/978-1-4613-3288-6_20

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