Dell'Era, Mario (2010): Geometrical Approximation method and stochastic volatility market models. Forthcoming in: Wilmott Magazine

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Abstract
We propose to discuss a new technique to derive an good approximated solution for the price of a European Vanilla options, in a market model with stochastic volatility. In particular, the models that we have considered are the Heston and SABR(for beta=1). These models allow arbitrary correlation between volatility and spot asset returns. We are able to write the price of European call and put, in the same form in which one can see in the BlackScholes model. The solution technique is based upon coordinate transformations that reduce the initial PDE in a straightforward onedimensional heat equation.
Item Type:  MPRA Paper 

Original Title:  Geometrical Approximation method and stochastic volatility market models 
English Title:  Geometrical Approximation method and stochastic volatility market models 
Language:  English 
Keywords:  Financial pricing method 
Subjects:  C  Mathematical and Quantitative Methods > C0  General C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods I  Health, Education, and Welfare > I2  Education and Research Institutions > I22  Educational Finance ; Financial Aid 
Item ID:  22568 
Depositing User:  Mario Dell'Era 
Date Deposited:  10 May 2010 12:53 
Last Modified:  29 Sep 2019 03:16 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/22568 