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Turbo Warrants under Hybrid Stochastic and Local Volatility

Author

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  • Min-Ku Lee
  • Ji-Hun Yoon
  • Jeong-Hoon Kim
  • Sun-Hwa Cho

Abstract

This paper considers the pricing of turbo warrants under a hybrid stochastic and local volatility model. The model consists of the constant elasticity of variance model incorporated by a fast fluctuating Ornstein-Uhlenbeck process for stochastic volatility. The sensitive structure of the turbo warrant price is revealed by asymptotic analysis and numerical computation based on the observation that the elasticity of variance controls leverage effects and plays an important role in characterizing various phases of volatile markets.

Suggested Citation

  • Min-Ku Lee & Ji-Hun Yoon & Jeong-Hoon Kim & Sun-Hwa Cho, 2014. "Turbo Warrants under Hybrid Stochastic and Local Volatility," Abstract and Applied Analysis, Hindawi, vol. 2014, pages 1-10, January.
    • Handle: RePEc:hin:jnlaaa:407145
    DOI: 10.1155/2014/407145
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    Cited by:

    1. Yoon, Ji-Hun & Park, Chang-Rae, 2016. "Pricing turbo warrants under stochastic elasticity of variance," Chaos, Solitons & Fractals, Elsevier, vol. 88(C), pages 107-118.

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