EXACT SOLUTION OF A MARTINGALE STOCHASTIC VOLATILITY OPTION PROBLEM AND ITS EMPIRICAL EVALUATION

@inproceedings{Maghsoodi2007EXACTSO,
  title={EXACT SOLUTION OF A MARTINGALE STOCHASTIC VOLATILITY OPTION PROBLEM AND ITS EMPIRICAL EVALUATION},
  author={Y. Maghsoodi},
  year={2007}
}
Exact explicit solution of the log-normal stochastic volatility (SV) option model has remained an open problem for two decades. In this paper, I consider the case where the risk-neutral measure induces a martingale volatility process, and derive an exact explicit solution to this unsolved problem which is also free from any inverse transforms. A representation of the asset price shows that its distribution depends on that of two random variables, the terminal SV as well as the time average of… CONTINUE READING

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