Option Price Decomposition in Spot-Dependent Volatility Models and Some Applications | Zendy

Raúl Merino | Zendy; Josep Vives | Zendy

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Option Price Decomposition in Spot-Dependent Volatility Models and Some Applications

Author(s) -

Raúl Merino,

Josep Vives

Publication year - 2017

Publication title -

international journal of stochastic analysis

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.19

H-Index - 28

eISSN - 2090-3340

pISSN - 2090-3332

DOI - 10.1155/2017/8019498

Subject(s) - mathematics , volatility (finance) , implied volatility , spot contract , constant elasticity of variance model , econometrics , call option , local volatility , stochastic volatility , hull , mathematical optimization , sabr volatility model , economics , finance , marine engineering , engineering , futures contract

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

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