Option Pricing in a Market Where the Volatility Is Driven by Fractional Brownian Motions

Yaozhong Hu
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Yaozhong Hu: Department of Mathematics, University of Kansas, 405 Snow Hall, Lawrence, KS 66045-2142, USA

Chapter 5 in Recent Developments in Mathematical Finance, 2001, pp 49-59 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn this paper the stochastic volatility model of Stein and Stein is extended to treat the long memory character of the volatility. It is proposed to model the volatility by a mean reverting Langevin equation driven by fractional Brownian motions. The risk-minimizing hedging price for European call options is obtained and its computation is discussed.

Keywords: Proceedings; Conference; Mathematical Finance; Shanghai (China) (search for similar items in EconPapers)
Date: 2001
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