"Probability Distribution and Option Pricing for Drawdown in a Stochastic Volatility Environment"
This paper studies the probability distribution and option pricing for drawdown in a stochastic volatility environment. Their analytical approximation formulas are derived by the application of a singular perturbation method (Fouque et al. [7]). The mathematical validity of the approximation is also proven. Then, numerical examples show that the instantaneous correlation between the asset value and the volatility state crucially affects the probability distribution and option prices for drawdown.
Year of publication: |
2009-06
|
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Authors: | Yamamoto, Kyo ; Sato, Seisho ; Takahashi, Akihiko |
Institutions: | Center for International Research on the Japanese Economy (CIRJE), Faculty of Economics |
Saved in:
freely available
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