European Option Pricing with Stochastic Volatility Models Under Parameter Uncertainty
Publikation: Bidrag til bog/antologi/rapport › Konferencebidrag i proceedings › Forskning › fagfællebedømt
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.
Originalsprog | Engelsk |
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Titel | Frontiers in Stochastic Analysis - BSDEs, SPDEs and their Applications : Selected, Revised and Extended Contributions |
Redaktører | Samuel N. Cohen, István Gyöngy, Gon?alo dos Reis, David Siska, Lukasz Szpruch |
Antal sider | 45 |
Forlag | Springer |
Publikationsdato | 2019 |
Sider | 123-167 |
ISBN (Trykt) | 9783030222840 |
DOI | |
Status | Udgivet - 2019 |
Begivenhed | International Workshop on BSDEs, SPDEs and their Applications, BSDE-SPDE 2017 - Edinburgh, Storbritannien Varighed: 3 jul. 2017 → 7 jul. 2017 |
Konference
Konference | International Workshop on BSDEs, SPDEs and their Applications, BSDE-SPDE 2017 |
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Land | Storbritannien |
By | Edinburgh |
Periode | 03/07/2017 → 07/07/2017 |
Navn | Springer Proceedings in Mathematics and Statistics |
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Vol/bind | 289 |
ISSN | 2194-1009 |
Links
- https://arxiv.org/pdf/1807.03882
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