Option pricing for stochastic volatility models : Vol-of-Vol expansion
(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:
https://lup.lub.lu.se/record/f6b83437-afc4-4356-a6f1-b1b87f8876a3
- author
- Aly, Sidi Mohamed LU
- organization
- publishing date
- 2014
- 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
- 2022-01-30 02:39:01
@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}}, }