Option Price Decomposition in Spot-Dependent Volatility Models and Some Applications. (31st July 2017)

• Record Type: Journal Article
• Authors: Merino, Raúl; Vives, Josep
• Other Names: Schurz Henri Academic Editor.
• Is Part Of: International journal of stochastic analysis. Volume 2017(2017)
• Publication Date: 2017-07-31
• Subjects: Stochastic analysis -- Periodicals; Stochastic analysis; Periodicals; 519.22
• DOI: 10.1155/2017/8019498
• Languages: English
• ISSNs: 2090-3332

Abstract

Abstract : We obtain a Hull and White type option price decomposition for a general local volatility model. We apply the obtained formula to CEV model. As an application we give an approximated closed formula for the call option price under a CEV model and an approximated short term implied volatility surface. These approximated formulas are used to estimate model parameters. Numerical comparison is performed for our new method with exact and approximated formulas existing in the literature.