A NUMERICAL ANALYSIS OF THE EXTENDED BLACK–SCHOLES MODEL

Sergio Albeverio, Alex Popovici and Victoria Steblovskaya
Additional contact information
Sergio Albeverio: Institut für Angewandte Mathematik, Universität Bonn, Wegelerstr 6, 53115 Bonn, Germany
Alex Popovici: Institut für Angewandte Mathematik, Universität Bonn, Wegelerstr 6, 53115 Bonn, Germany
Victoria Steblovskaya: Department of Mathematical Sciences, Bentley College, 175 Forest Street, Waltham, MA 02452, USA

International Journal of Theoretical and Applied Finance (IJTAF), 2006, vol. 09, issue 01, 69-89

Abstract: In this article some numerical results regarding the multidimensional extension of the Black–Scholes model introduced by Albeverio and Steblovskaya [1] (a multidimensional model with stochastic volatilities and correlations) are presented. The focus lies on aspects concerning the use of this model for the practice of financial derivatives. Two parameter estimation methods for the model using historical data from the market and an analysis of the corresponding numerical results are given. Practical advantages of pricing derivatives using this model compared to the original multidimensional Black–Scholes model are pointed out. In particular the prices of vanilla options and of implied volatility surfaces computed in the model are close to those observed on the market.

Keywords: Multidimensional Black–Scholes model; stochastic volatilities and correlations; pricing of contingent claims (search for similar items in EconPapers)
Date: 2006
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024906003469
Access to full text is restricted to subscribers

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:wsi:ijtafx:v:09:y:2006:i:01:n:s0219024906003469

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024906003469

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().