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Viscosity Solutions and American Option Pricing in a Stochastic Volatility Model of the Ornstein-Uhlenbeck Type

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  • Alexandre F. Roch

Abstract

In this paper, we study the valuation of American type derivatives in the stochastic volatility model of Barndorff-Nielsen and Shephard (2001). We characterize the value of such derivatives as the unique viscosity solution of an integral-partial differential equation when the payoff function satisfies a Lipschitz condition.

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  • Alexandre F. Roch, 2008. "Viscosity Solutions and American Option Pricing in a Stochastic Volatility Model of the Ornstein-Uhlenbeck Type," Papers 0812.2444, arXiv.org.
    • Handle: RePEc:arx:papers:0812.2444
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    1. Ole E. Barndorff‐Nielsen & Neil Shephard, 2001. "Non‐Gaussian Ornstein–Uhlenbeck‐based models and some of their uses in financial economics," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 63(2), pages 167-241.
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    Cited by:

    1. Wanyang Dai, 2014. "Mean-variance hedging based on an incomplete market with external risk factors of non-Gaussian OU processes," Papers 1410.0991, arXiv.org, revised Aug 2015.

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