Turbo Warrants under Hybrid Stochastic and Local Volatility. (18th December 2013)

• Record Type: Journal Article
• Authors: Lee, Min-Ku; Yoon, Ji-Hun; Kim, Jeong-Hoon; Cho, Sun-Hwa
• Other Names: Polidoro Sergio Academic Editor.
• Is Part Of: Abstract and applied analysis. Volume 2014(2014)
• Publication Date: 2013-12-18
• Subjects: Mathematical analysis -- Periodicals; Mathematical analysis; Applied Mathematics; Mathematical Analysis; Periodicals; 515.05
• DOI: 10.1155/2014/407145
• Languages: English
• ISSNs: 1085-3375

Abstract

Abstract : This paper considers the pricing of turbo warrants under a hybrid stochastic and local volatility model. The model consists of the constant elasticity of variance model incorporated by a fast fluctuating Ornstein-Uhlenbeck process for stochastic volatility. The sensitive structure of the turbo warrant price is revealed by asymptotic analysis and numerical computation based on the observation that the elasticity of variance controls leverage effects and plays an important role in characterizing various phases of volatile markets.