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Option pricing with quadratic volatility: a revisit

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  • Leif Andersen

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  • Leif Andersen, 2011. "Option pricing with quadratic volatility: a revisit," Finance and Stochastics, Springer, vol. 15(2), pages 191-219, June.
    • Handle: RePEc:spr:finsto:v:15:y:2011:i:2:p:191-219
    DOI: 10.1007/s00780-010-0142-8
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    References listed on IDEAS

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    1. repec:bla:jfinan:v:44:y:1989:i:1:p:211-19 is not listed on IDEAS
    2. Emanuel, David C. & MacBeth, James D., 1982. "Further Results on the Constant Elasticity of Variance Call Option Pricing Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(4), pages 533-554, November.
    3. Steven L. Heston & Mark Loewenstein & Gregory A. Willard, 2007. "Options and Bubbles," The Review of Financial Studies, Society for Financial Studies, vol. 20(2), pages 359-390.
    4. Christian Zuhlsdorff, 2001. "The pricing of derivatives on assets with quadratic volatility," Applied Mathematical Finance, Taylor & Francis Journals, vol. 8(4), pages 235-262.
    5. Alexander Cox & David Hobson, 2005. "Local martingales, bubbles and option prices," Finance and Stochastics, Springer, vol. 9(4), pages 477-492, October.
    6. Leif Andersen & Jesper Andreasen, 2000. "Volatility skews and extensions of the Libor market model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 7(1), pages 1-32.
    7. Alan L. Lewis, 2000. "Option Valuation under Stochastic Volatility," Option Valuation under Stochastic Volatility, Finance Press, number ovsv, December.
    8. Sven Rady, 1997. "Option pricing in the presence of natural boundaries and a quadratic diffusion term (*)," Finance and Stochastics, Springer, vol. 1(4), pages 331-344.
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    Citations

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    Cited by:

    1. Martin HERDEGEN & Martin SCHWEIZER, 2016. "Economically Consistent Valuations and Put-Call Parity," Swiss Finance Institute Research Paper Series 16-02, Swiss Finance Institute.
    2. Stephen Taylor & Scott Glasgow & James Taylor & Jan Vecer, 2016. "Explicit Density Approximations for Local Volatility Models Using Heat Kernel Expansions," Methodology and Computing in Applied Probability, Springer, vol. 18(3), pages 847-867, September.
    3. Alexander Lipton & Andrey Gal & Andris Lasis, 2013. "Pricing of vanilla and first generation exotic options in the local stochastic volatility framework: survey and new results," Papers 1312.5693, arXiv.org.
    4. Antoine Jacquier & Martin Keller-Ressel, 2015. "Implied volatility in strict local martingale models," Papers 1508.04351, arXiv.org.
    5. Matthew Lorig & Stefano Pagliarani & Andrea Pascucci, 2017. "Explicit Implied Volatilities For Multifactor Local-Stochastic Volatility Models," Mathematical Finance, Wiley Blackwell, vol. 27(3), pages 926-960, July.
    6. Xiu, Dacheng, 2014. "Hermite polynomial based expansion of European option prices," Journal of Econometrics, Elsevier, vol. 179(2), pages 158-177.
    7. Slobodan Milovanovi'c & Victor Shcherbakov, 2017. "Pricing Derivatives under Multiple Stochastic Factors by Localized Radial Basis Function Methods," Papers 1711.09852, arXiv.org, revised Aug 2018.
    8. Yukihiro Tsuzuki, 2024. "Boundary conditions at infinity for Black-Scholes equations," Papers 2401.05549, arXiv.org, revised Sep 2024.
    9. Louis-Pierre Arguin & Nien-Lin Liu & Tai-Ho Wang, 2018. "Most-Likely-Path In Asian Option Pricing Under Local Volatility Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(05), pages 1-32, August.
    10. Martin Herdegen & Martin Schweizer, 2018. "Semi‐efficient valuations and put‐call parity," Mathematical Finance, Wiley Blackwell, vol. 28(4), pages 1061-1106, October.
    11. Peter Carr & Travis Fisher & Johannes Ruf, 2014. "On the hedging of options on exploding exchange rates," Finance and Stochastics, Springer, vol. 18(1), pages 115-144, January.
    12. Louis-Pierre Arguin & Nien-Lin Liu & Tai-Ho Wang, 2017. "Most-likely-path in Asian option pricing under local volatility models," Papers 1706.02408, arXiv.org, revised Aug 2018.
    13. Peter Carr & Travis Fisher & Johannes Ruf, 2012. "Why are quadratic normal volatility models analytically tractable?," Papers 1202.6187, arXiv.org, revised Mar 2013.
    14. Paolo Guasoni & Miklós Rásonyi, 2015. "Fragility of arbitrage and bubbles in local martingale diffusion models," Finance and Stochastics, Springer, vol. 19(2), pages 215-231, April.
    15. Çetin, Umut & Larsen, Kasper, 2023. "Uniqueness in cauchy problems for diffusive real-valued strict local martingales," LSE Research Online Documents on Economics 118743, London School of Economics and Political Science, LSE Library.
    16. Leif Andersen & Alexander Lipton, 2012. "Asymptotics for Exponential Levy Processes and their Volatility Smile: Survey and New Results," Papers 1206.6787, arXiv.org.
    17. Mark Craddock & Martino Grasselli, 2016. "Lie Symmetry Methods for Local Volatility Models," Research Paper Series 377, Quantitative Finance Research Centre, University of Technology, Sydney.
    18. Craddock, Mark & Grasselli, Martino, 2020. "Lie symmetry methods for local volatility models," Stochastic Processes and their Applications, Elsevier, vol. 130(6), pages 3802-3841.
    19. Umut Cetin & Kasper Larsen, 2020. "Uniqueness in Cauchy problems for diffusive real-valued strict local martingales," Papers 2007.15041, arXiv.org, revised May 2022.

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    More about this item

    Keywords

    Quadratic volatility; Strict local martingale; Put and call option pricing; Hitting time densities; Fourier series; Method of images; 91G20; 91G80; 60G40; 60G46; G12; G13;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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