Geometrical Approximation method and stochastic volatility market models

Mario Dell'Era

MPRA Paper from University Library of Munich, Germany

Abstract: We propose to discuss a new technique to derive an good approximated solution for the price of a European Vanilla options, in a market model with stochastic volatility. In particular, the models that we have considered are the Heston and SABR(for beta=1). These models allow arbitrary correlation between volatility and spot asset returns. We are able to write the price of European call and put, in the same form in which one can see in the Black-Scholes model. The solution technique is based upon coordinate transformations that reduce the initial PDE in a straightforward one-dimensional heat equation.

Keywords: Financial; pricing; method (search for similar items in EconPapers)
JEL-codes: C0 C02 I22 (search for similar items in EconPapers)
Date: 2010-05-05
New Economics Papers: this item is included in nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/22568/1/MPRA_paper_22568.pdf original version (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:pra:mprapa:22568

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().