Research and publications
Option pricing and hedging under a stochastic volatility Lévy process model
Review of Derivatives Research, Volume 15, pages 81–97, (2012)
In this paper, we discuss a stochastic volatility model with a Lévy driving process and then appl ...
Author(s):
Frank J. Fabozzi, Young Shin Kim, Zuodong Lin, Svetlozar T. Rachev
Summary:
Review of Derivatives Research, Volume 15, pages 81–97, (2012)
In this paper, we discuss a stochastic volatility model with a Lévy driving process and then apply the model to option pricing and hedging. The stochastic volatility in our model is defined by the continuous Markov chain. The risk-neutral measure is obtained by applying the Esscher transform. The option price using this model is computed by the Fourier transform method. We obtain the closed-form solution for the hedge ratio by applying locally risk-minimizing hedging.
| Type : | Academic Publication |
|---|---|
| Date : | 24/04/2012 |
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