The pricing of european options under the constant elasticity of variance with stochastic volatility

Bounghun Bock, Sun Yong Choi, Jeong Hoon Kim

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1 Citation (Scopus)

Abstract

This paper considers a hybrid risky asset price model given by a constant elasticity of variance multiplied by a stochastic volatility factor. A multiscale analysis leads to an asymptotic pricing formula for both European vanilla option and a Barrier option near the zero elasticity of variance. The accuracy of the approximation is provided in a rigorous manner. A numerical experiment for implied volatilities shows that the hybrid model improves some of the well-known models in view of fitting the data for different maturities.

Original languageEnglish
Article number1350004
JournalFluctuation and Noise Letters
Volume12
Issue number1
DOIs
Publication statusPublished - 2013 Mar

All Science Journal Classification (ASJC) codes

  • Mathematics(all)
  • Physics and Astronomy(all)

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