Pricing perpetual American options under multiscale stochastic elasticity of variance

Ji-Hun Yoon

Chaos, Solitons & Fractals, 2015, vol. 70, issue C, 14-26

Abstract: This paper studies pricing the perpetual American options under a constant elasticity of variance type of underlying asset price model where the constant elasticity is replaced by a fast mean-reverting Ornstein–Ulenbeck process and a slowly varying diffusion process. By using a multiscale asymptotic analysis, we find the impact of the stochastic elasticity of variance on the option prices and the optimal exercise prices with respect to model parameters. Our results enhance the existing option price structures in view of flexibility and applicability through the market prices of elasticity risk.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0960077914001830
Full text for ScienceDirect subscribers only

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:eee:chsofr:v:70:y:2015:i:c:p:14-26

DOI: 10.1016/j.chaos.2014.10.012

Access Statistics for this article

Chaos, Solitons & Fractals is currently edited by Stefano Boccaletti and Stelios Bekiros

More articles in Chaos, Solitons & Fractals from Elsevier
Bibliographic data for series maintained by Thayer, Thomas R. ().