To access the full text documents, please follow this link: http://hdl.handle.net/10230/6063

A decomposition formula for option prices in the Heston model and applications to option pricing approximation
Alòs, Elisa
Universitat Pompeu Fabra. Departament d'Economia i Empresa
By means of classical Itô's calculus we decompose option prices asthe sum of the classical Black-Scholes formula with volatility parameterequal to the root-mean-square future average volatility plus a term dueby correlation and a term due to the volatility of the volatility. Thisdecomposition allows us to develop first and second-order approximationformulas for option prices and implied volatilities in the Heston volatilityframework, as well as to study their accuracy. Numerical examples aregiven.
2010-05-13
Statistics, Econometrics and Quantitative Methods
stochastic volatility
heston model
itô's calculus.
L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
http://creativecommons.org/licenses/by-nc-nd/3.0/es/
Working Paper
         

Show full item record

 

Coordination

 

Supporters