This paper develops a subordinated stochastic process model for an asset price, where the directing process is identified as information. Motivated by recent empirical and theoretical work, the paper makes use of the under-used market statistic of transaction count as a suitable proxy for the...

The main result of the paper is a formula for zero time-to-maturity limit of implied volatilities of European options under a broad class of stochastic volatility models. Based on this formula, we propose a closed-form approximation of the implied volatility smile. Numerical examples suggest...

Recent research on contingent claims valuation has assumed increasingly general models of the behavior of cash securities. Relatively few attempts have been made to implement and evaluate such models empirically, however. In this paper we apply a multi-factor, continuous time pricing model to...

This paper studies the behavior of the implied volatility function (smile) when the true distribution of the underlying asset is consistent with the stochastic volatility model proposed by Heston (1993). The main result of the paper is to extend previous results applicable to the smile as a...

In this paper, we deal with the pricing of European style options when the dynamics of the risky underlying asset are driven by a Markov-modulated jump diffusion with stochastic volatility. We investigate the Radon–Nikodym derivative for the minimal martingale measure and a partial...

A characteristic function-based method is proposed to estimate the time-changed Lévy models, which take into account both stochastic volatility and infinite-activity jumps. The method facilitates computation and overcomes problems related to the discretization error and to the non-tractable...

In this paper we study the detailed distributional properties of integrated non-Gaussian OU (intOU) processes. Both exact and approximate results are given. We emphasise the study of the tail behaviour of the intOU process. Our results have many potential applications in financial economics, for...

Discrepancies between the Black-Scholes value of Japanese equity warrants and their observed prices are explained in part by the stochastic volatility of changes in prices of the underlying stocks. We fit GARCH and EGARCH models to the stochastic volatility and briefly compare their performance...

Stochastic volatility option pricing has become popular in financial mathematics due to its theoretical and empirical consistencies. However, stochastic volatility models generally suffer from analytical and calibration intractability, except for regime switching stochastic volatility. However,...

We introduce the Simplified Component GARCH (SC-GARCH) option pricing model, show and discuss sufficient conditions for non-negativity of the conditional variance, apply it to low-frequency and high-frequency financial data, and consider the option valuation, comparing the model performance with...