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Pricing Call Options under Stochastic Volatilities
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- Authors
- Issue Date
- 2002-10
- Citation
- Seoul Journal of Economics, Vol.15 No.4, pp. 499-528
- Keywords
- Continuity ; Diffusion ; Martingale
- Abstract
- This paper derives a closed-form solution for the European call option price when the volatility of the underlying stock returns is governed by a diffusion process. The model uses the continuity property of a diffusion process and the martingale approach to valuation of assets under no arbitrage. The pricing formula differs from the Black-Scholes formula in that it needs a volatility adjustment. The volatility movement is allowed to be contemporaneously correlated with the stock price movement.
- ISSN
- 1225-0279
- Language
- English
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