Uncertain Parameters, an Empirical Stochastic Volatility Model and Confidence Limits
In this paper we build upon the recently developed uncertain parameter framework for valuing derivatives in a worst-case scenario. We start by deriving a stochastic volatility model based on a simple analysis of time-series data. We use this stochastic model to examine the time evolution of volatility from an initial known value to a steady-state distribution in the long run. This empirical model is then incorporated into the uncertain parameter option valuation framework to provide 'confidence limits' for the option value.
Year of publication: |
1999
|
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Authors: | Oztukel, A. ; Wilmott, P. |
Institutions: | Finance Research Centre, Oxford University |
Saved in:
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