Related papers: Option Pricing with Time-Varying Volatility Risk A…

We introduce a new volatility model for option pricing that combines Markov switching with the Realized GARCH framework. This leads to a novel pricing kernel with a state-dependent variance risk premium and a pricing formula for European…

This paper proposes a hybrid credit risk model, in closed form, to price vulnerable options with stochastic volatility. The distinctive features of the model are threefold. First, both the underlying and the option issuer's assets follow…

We revisit the problem of pricing options with historical volatility estimators. We do this in the context of a generalized GARCH model with multiple time scales and asymmetry. It is argued that the reason for the observed volatility risk…

We present a discrete time stochastic volatility model in which the conditional distribution of the logreturns is a Variance-Gamma, that is a normal variance-mean mixture with Gamma mixing density. We assume that the Gamma mixing density is…

Based on empirical market data, a stochastic volatility model is proposed with volatility driven by fractional noise. The model is used to obtain a risk-neutrality option pricing formula and an option pricing equation.

We introduce a modular framework that extends the signature method to handle American option pricing under evolving volatility roughness. Building on the signature-pricing framework of Bayer et al. (2025), we add three practical…

This study provides a consistent and efficient pricing method for both Standard & Poor's 500 Index (SPX) options and the Chicago Board Options Exchange's Volatility Index (VIX) options under a multiscale stochastic volatility model. To…

The risk-neutral option pricing method under GARCH intensity model is examined. The GARCH intensity model incorporates the characteristics of financial return series such as volatility clustering, leverage effect and conditional asymmetry.…

We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two…

Recent empirical studies suggest that the volatilities associated with financial time series exhibit short-range correlations. This entails that the volatility process is very rough and its autocorrelation exhibits sharp decay at the…

In this paper we study time-consistent risk measures for returns that are given by a GARCH(1,1) model. We present a construction of risk measures based on their static counterparts that overcomes the lack of time-consistency. We then study…

We consider Heston's (1993) stochastic volatility model for valuation of European options to which (semi) closed form solutions are available and are given in terms of characteristic functions. We prove that the class of scale-parameter…

In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…

In this paper we solve the discrete time mean-variance hedging problem when asset returns follow a multivariate autoregressive hidden Markov model. Time dependent volatility and serial dependence are well established properties of financial…

In this paper, we price European Call three different option pricing models, where the volatility is dynamically changing i.e. non constant. In stochastic volatility (SV) models for option pricing a closed form approximation technique is…

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…

We address the information content of European option prices about volatility in terms of the Fisher information matrix. We assume that observed option prices are centred on the theoretical price provided by Heston's model disturbed by…

Several well-established benchmark predictors exist for Value-at-Risk (VaR), a major instrument for financial risk management. Hybrid methods combining AR-GARCH filtering with skewed-$t$ residuals and the extreme value theory-based approach…

Most of the empirical studies on stochastic volatility dynamics favor the 3/2 specification over the square-root (CIR) process in the Heston model. In the context of option pricing, the 3/2 stochastic volatility model is reported to be able…

Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying…