IDEAS home Printed from https://ideas.repec.org/a/taf/apmtfi/v22y2015i1p63-82.html
   My bibliography  Save this article

Effect of Volatility Clustering on Indifference Pricing of Options by Convex Risk Measures

Author

Listed:
  • Rohini Kumar

Abstract

In this article, we look at the effect of volatility clustering on the risk indifference price of options described by Sircar and Sturm in their paper (Sircar, R., & Sturm, S. (2012). From smile asymptotics to market risk measures. Mathematical Finance . Advance online publication. doi:10.1111/mafi.12015). The indifference price in their article is obtained by using dynamic convex risk measures given by backward stochastic differential equations. Volatility clustering is modelled by a fast mean-reverting volatility in a stochastic volatility model for stock price. Asymptotics of the indifference price of options and their corresponding implied volatility are obtained in this article, as the mean-reversion time approaches zero. Correction terms to the asymptotic option price and implied volatility are also obtained.

Suggested Citation

  • Rohini Kumar, 2015. "Effect of Volatility Clustering on Indifference Pricing of Options by Convex Risk Measures," Applied Mathematical Finance, Taylor & Francis Journals, vol. 22(1), pages 63-82, March.
    • Handle: RePEc:taf:apmtfi:v:22:y:2015:i:1:p:63-82
    DOI: 10.1080/1350486X.2014.949805
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1350486X.2014.949805
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1350486X.2014.949805?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rohini Kumar & Frederick Forrest Miller & Hussein Nasralah & Stephan Sturm, 2024. "Risk-indifference Pricing of American-style Contingent Claims," Papers 2409.00095, arXiv.org.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:22:y:2015:i:1:p:63-82. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAMF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.