A generalization of Hull and White formula and applications to option pricing approximation

Elisa Alòs (elisa.alos@upf.edu)
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Elisa Alòs: https://www.upf.edu/web/econ/faculty/-/asset_publisher/6aWmmXf28uXT/persona/id/3418685

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: By means of Malliavin Calculus we see that the classical Hull and White formula for option pricing can be extended to the case where the noise driving the volatility process is correlated with the noise driving the stock prices. This extension will allow us to construct option pricing approximation formulas. Numerical examples are presented.

Keywords: Continuous-time option pricing model; stochastic volatility; Malliavin calculus (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2004-02
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