EconPapers    
Economics at your fingertips  
 

The Jacobi Stochastic Volatility Model

Damien Ackerer (), Damir Filipovic () and Sergio Pulido ()
Additional contact information
Damien Ackerer: EPFL - Ecole Polytechnique Fédérale de Lausanne, Swiss Finance Institute [Lausanne] - EPFL - Ecole Polytechnique Fédérale de Lausanne
Damir Filipovic: EPFL - Ecole Polytechnique Fédérale de Lausanne, Swiss Finance Institute [Lausanne] - EPFL - Ecole Polytechnique Fédérale de Lausanne
Sergio Pulido: LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - CNRS - Centre National de la Recherche Scientifique, ENSIIE - Ecole Nationale Supérieure d'Informatique pour l'Industrie et l'Entreprise

Post-Print from HAL

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 analysis 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 (search for similar items in EconPapers)
Date: 2018-07-01
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01338330v3
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Published in Finance and Stochastics, Springer Verlag (Germany), 2018, 〈10.1007/s00780-018-0364-8〉

Downloads: (external link)
https://hal.archives-ouvertes.fr/hal-01338330v3/document (application/pdf)

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:hal:journl:hal-01338330

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2019-01-19
Handle: RePEc:hal:journl:hal-01338330