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Pricing Call Options under Stochastic Volatilities

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Authors
Ahn, ChangMo; Cho, Chinhyung
Issue Date
2002-10
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.15 No.4, pp. 499-528
Keywords
ContinuityDiffusionMartingale
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
URI
http://hdl.handle.net/10371/1275
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.15(4) (Winter 2002)
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