Numerical Pricing of Options under the Exponential Ornstein-Uhlenbeck Stochastic Volatility Model based on a DG Technique

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F46747885%3A24510%2F18%3A00007428" target="_blank" >RIV/46747885:24510/18:00007428 - isvavai.cz</a>
Alternative codes found
RIV/61989100:27510/18:10240130
Result on the web
<a href="https://doi.org/10.1063/1.5082070" target="_blank" >https://doi.org/10.1063/1.5082070</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1063/1.5082070" target="_blank" >10.1063/1.5082070</a>

Result language
angličtina
Original language name
Numerical Pricing of Options under the Exponential Ornstein-Uhlenbeck Stochastic Volatility Model based on a DG Technique
Original language description
Stochastic volatility models are a variance extension of the classical Black-Scholes model dynamics by introducing another auxiliary processes to model the volatility of the underlying asset returns. Here we study the pricing problem for European style options under a one-factor stochastic volatility model when the volatility of the underlying price is governed by the exponential Ornstein–Uhlenbeck process. The problem can be formulated as a non-stationary second-order degenerate partial differential equation accompanied by initial and boundary conditions, whose analytical solutions are not available in general. Therefore, the approximate option value is obtained by a numerical procedure based on a discontinuous Galerkin technique that provides promising results. Finally, reference numerical experiments are provided with the emphasis on the behaviour of the option values with respect to the discretization parameters.
Czech name
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Czech description
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Project
<a href="/en/project/GA16-09541S" target="_blank" >GA16-09541S: Robust numerical schemes for pricing of selected options under various market conditions</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2018
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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