In this paper, we consider the numerical approximation of the prices of vanilla options in a displaced-lognormal Heston model. First of all, we derive an alternative representation of option prices which facilitates robust numerical approximation including the case where the local volatility is...

This paper conducts a thorough and detailed investigation on the implications of stochastic volatility and random jump on option prices. Both stochastic volatility and jump-diffusion processes admit asymmetric and fat-tailed distribution of asset returns and thus have similar impact on option...

In this paper, we solve the problem of solution of stochastic volatility models in which the volatility diffusion can be solved by a one dimensional Fokker-planck equation. We use one dimensional transition probabilities for the evolution of PDE of variance. We also find dynamics of evolution of...

This paper considers the problem of European option pricing in the presence of proportional transaction costs when the price of the underlying follows a jump diffusion process. Using an approach that is based on maximization of the expected utility of terminal wealth, we transform the option...

In this paper we derive an easily computed approximation of Rogers and Shi's lower bound for a local volatility jump-diffusion model and then use it to approximate European basket option values. If the local volatility function is time independent then there is a closed-form expression for the...

Exponential Lévy processes can be used to model the evolution of various financial variables such as FX rates, stock prices, etc. Considerable efforts have been devoted to pricing derivatives written on underliers governed by such processes, and the corresponding implied volatility surfaces...

This paper provides empirical evidence that jumps in the underlying stock price process are superfluous for European option pricing in time changed L évy models. We introduce a model with a.s. continuous sample paths and a parsimonious description in terms of free parameters. The conducted in-...

We study here the large-time behavior of all continuous affine stochastic volatility models (in the sense of Keller-Ressel) and deduce a closed-form formula for the large-maturity implied volatility smile. Based on refinements of the Gartner-Ellis theorem on the real line, our proof reveals...

We develop a zero beta industry model of growth options to explain the conflicting empirical findings on the relation between stock returns and idiosyncratic return volatility at the firm level. By allowing for the volatility of the underlying idiosyncratic choice variables to exhibit...