European Option Pricing with Stochastic Volatility Models Under Parameter Uncertainty

Publikation: Bidrag til bog/antologi/rapportKonferencebidrag i proceedingsForskningfagfællebedømt

  • Samuel N. Cohen
  • Martin Tegnér

We consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and formalise the problem as a control problem where the control acts on the parameters to maximise/minimise the option value. Through a dual representation with backward stochastic differential equations, we obtain explicit equations for Heston’s model and investigate several numerical solutions thereof. In an empirical study, we apply our results to market data from the S&P 500 index where the model is estimated to historical asset prices. We find that the conservative model-prices cover 98% of the considered market-prices for a set of European call options.

OriginalsprogEngelsk
TitelFrontiers in Stochastic Analysis - BSDEs, SPDEs and their Applications : Selected, Revised and Extended Contributions
RedaktørerSamuel N. Cohen, István Gyöngy, Gon?alo dos Reis, David Siska, Lukasz Szpruch
Antal sider45
ForlagSpringer
Publikationsdato2019
Sider123-167
ISBN (Trykt)9783030222840
DOI
StatusUdgivet - 2019
BegivenhedInternational Workshop on BSDEs, SPDEs and their Applications, BSDE-SPDE 2017 - Edinburgh, Storbritannien
Varighed: 3 jul. 20177 jul. 2017

Konference

KonferenceInternational Workshop on BSDEs, SPDEs and their Applications, BSDE-SPDE 2017
LandStorbritannien
ByEdinburgh
Periode03/07/201707/07/2017
NavnSpringer Proceedings in Mathematics and Statistics
Vol/bind289
ISSN2194-1009

Links

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