Option pricing in the model with stochastic volatility driven by Ornstein--Uhlenbeck process. Simulation
Computational Finance
2016-01-07 v1 Probability
Pricing of Securities
Abstract
We consider a discrete-time approximation of paths of an Ornstein--Uhlenbeck process as a mean for estimation of a price of European call option in the model of financial market with stochastic volatility. The Euler--Maruyama approximation scheme is implemented. We determine the estimates for the option price for predetermined sets of parameters. The rate of convergence of the price and an average volatility when discretization intervals tighten are determined. Discretization precision is analyzed for the case where the exact value of the price can be derived.
Cite
@article{arxiv.1601.01128,
title = {Option pricing in the model with stochastic volatility driven by Ornstein--Uhlenbeck process. Simulation},
author = {Sergii Kuchuk-Iatsenko and Yuliya Mishura},
journal= {arXiv preprint arXiv:1601.01128},
year = {2016}
}
Comments
Published at http://dx.doi.org/10.15559/15-VMSTA43 in the Modern Stochastics: Theory and Applications (https://www.i-journals.org/vtxpp/VMSTA) by VTeX (http://www.vtex.lt/)