Non-constant volatility models a comparison

Paolo Foschi

No 344, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: Option pricing model with non-constant volatility models are compared to stochastic volatility ones. The non-constant volatility models considered are the Dupire's local volatility and Hobson and Rogers path-dependent volatility models. These approaches have the theoretical advantage of preserving the completeness of the market. The stochastic volatility models discussed are the Heston stochastic volatility and the SABR models. Because of their two-factor nature these models are notably flexible. The performances of the models are compared by considering their fit to the term structure of implied volatility, their robustness on the hedging and pricing of vanilla and exotic options.

Keywords: Stochastic volatility; option pricing; calibration; exotic options (search for similar items in EconPapers)
JEL-codes: C00 G13 (search for similar items in EconPapers)
Date: 2006-07-04
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:sce:scecfa:344

Access Statistics for this paper

More papers in Computing in Economics and Finance 2006 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().