The Jacobi stochastic volatility model
Damien Ackerer (),
Damir Filipović () and
Sergio Pulido ()
Additional contact information
Damien Ackerer: Swissquote Bank
Damir Filipović: EPFL and Swiss Finance Institute
Sergio Pulido: Université Paris-Saclay
Finance and Stochastics, 2018, vol. 22, issue 3, 667-700
Abstract We introduce a novel stochastic volatility model where the squared volatility of the asset return follows a Jacobi process. It contains the Heston model as a limit case. We show that the joint density of any finite sequence of log-returns admits a Gram–Charlier A expansion with closed-form coefficients. We derive closed-form series representations for option prices whose discounted payoffs are functions of the asset price trajectory at finitely many time points. This includes European call, put and digital options, forward start options, and can be applied to discretely monitored Asian options. In a numerical study, we show that option prices can be accurately and efficiently approximated by truncating their series representations.
Keywords: Jacobi process; Option pricing; Polynomial model; Stochastic volatility; 91B25; 91B70; 91G20; 91G60 (search for similar items in EconPapers)
JEL-codes: C32 G12 G13 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s00780-018-0364-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:spr:finsto:v:22:y:2018:i:3:d:10.1007_s00780-018-0364-8
Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2
Access Statistics for this article
Finance and Stochastics is currently edited by M. Schweizer
More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla ().