The α-hypergeometric stochastic volatility model

José Da Fonseca and Claude Martini

Stochastic Processes and their Applications, 2016, vol. 126, issue 5, 1472-1502

Abstract: The aim of this work is to introduce a new stochastic volatility model for equity derivatives. To overcome some of the well-known problems of the Heston model, and more generally of affine models, we define a new specification for the dynamics of the volatility. Within this framework we develop all the key elements to perform the pricing of vanilla European options as well as of volatility derivatives. We clarify the conditions under which the stock price is a martingale and illustrate how the model can be implemented.

Keywords: Equity stochastic volatility models; Volatility derivatives; European option pricing (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:spapps:v:126:y:2016:i:5:p:1472-1502

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DOI: 10.1016/j.spa.2015.11.010

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