This book presents a factor-based model of the stochastic evolution of the implied volatility surface. The model allows … volatility derivatives. In the first part, the book develops a unifying theory for the analysis of contingent claims under both … the real-world measure and the risk-neutral measure in an environment of stochastic implied volatility. On the basis of …

along with the specification of (a) the initial density, and (b) the volatility structure of the density. The volatility …

our dynamic stock price model, we develop a two factor general equilibrium model for pricing derivative securities. The …