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Option pricing for stochastic volatility models : Vol-of-Vol expansion

Aly, Sidi Mohamed LU (2014) In SIAM Journal on Financial Mathematics 5(1). p.729-752
Abstract
In this article, we propose an analytical approximation for the pricing of European options for some log-normal stochastic volatility models. This approximation is a second-order Taylor series expansion of the Fourier transform with respect to the “volatility of volatility.” We give, using these formulas, a new method of variance reduction for the Monte Carlo simulation of the trajectories of the underlying.
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
stochastic volatility, log-normal model, Fourier transform, expansion, volatility of volatility, European options, Implied volatility
in
SIAM Journal on Financial Mathematics
volume
5
issue
1
pages
729 - 752
publisher
Society for Industrial and Applied Mathematics
external identifiers
  • scopus:84920816327
ISSN
1945-497X
DOI
10.1137/110848682
language
English
LU publication?
yes
id
f6b83437-afc4-4356-a6f1-b1b87f8876a3
date added to LUP
2016-04-13 13:25:11
date last changed
2025-10-14 09:41:45
@article{f6b83437-afc4-4356-a6f1-b1b87f8876a3,
  abstract     = {{In this article, we propose an analytical approximation for the pricing of European options for some log-normal stochastic volatility models. This approximation is a second-order Taylor series expansion of the Fourier transform with respect to the “volatility of volatility.” We give, using these formulas, a new method of variance reduction for the Monte Carlo simulation of the trajectories of the underlying.}},
  author       = {{Aly, Sidi Mohamed}},
  issn         = {{1945-497X}},
  keywords     = {{stochastic volatility; log-normal model; Fourier transform; expansion; volatility of volatility; European options; Implied volatility}},
  language     = {{eng}},
  number       = {{1}},
  pages        = {{729--752}},
  publisher    = {{Society for Industrial and Applied Mathematics}},
  series       = {{SIAM Journal on Financial Mathematics}},
  title        = {{Option pricing for stochastic volatility models : Vol-of-Vol expansion}},
  url          = {{http://dx.doi.org/10.1137/110848682}},
  doi          = {{10.1137/110848682}},
  volume       = {{5}},
  year         = {{2014}},
}