Application of Malliavin calculus to exact and approximate option pricing under stochastic volatility
Pricing of Securities
2016-08-02 v1 Probability
Abstract
The article is devoted to models of financial markets with stochastic volatility, which is defined by a functional of Ornstein-Uhlenbeck process or Cox-Ingersoll-Ross process. We study the question of exact price of European option. The form of the density function of the random variable, which expresses the average of the volatility over time to maturity is established using Malliavin calculus.The result allows calculate the price of the option with respect to minimum martingale measure when the Wiener process driving the evolution of asset price and the Wiener process, which defines volatility, are uncorrelated.
Keywords
Cite
@article{arxiv.1608.00230,
title = {Application of Malliavin calculus to exact and approximate option pricing under stochastic volatility},
author = {S. Kuchuk-Iatsenko and Y. Mishura and Y. Munchak},
journal= {arXiv preprint arXiv:1608.00230},
year = {2016}
}