Corpus ID: 202661178

Option pricing under normal dynamics with stochastic volatility

@article{Reddy2019OptionPU,
  title={Option pricing under normal dynamics with stochastic volatility},
  author={Matta Uma Maheswara Reddy},
  journal={arXiv: Pricing of Securities},
  year={2019}
}
  • Matta Uma Maheswara Reddy
  • Published 2019
  • Economics
  • arXiv: Pricing of Securities
  • In this paper, we derive the price of a European call option of an asset following a normal process assuming stochastic volatility. The volatility is assumed to follow the Cox Ingersoll Ross (CIR) process. We then use the fast Fourier transform (FFT) to evaluate the option price given we know the characteristic function of the return analytically. We compare the results of fast Fourier transform with the Monte Carlo simulation results of our process. Further, we present a numerical example to… CONTINUE READING

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