Discrete Time Stochastic Volatility

We propose a new methodology for obtaining arbitrage free European option prices from a SABR-like parameterisation. The method consists of specifying the joint distribution of the volatility and underlying at a given expiry and requires the calculation of a simple one-dimensional numerical integral per option price. CMS prices and some more general payouts can also be obtained as one-dimensional integrals. The specification of the volatility function is flexible and allows additional control over the wings of the distribution. The approach itself is general and applicable to a variety of asset classes

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Year of publication:	2017
Authors:	Roos, Thomas
Publisher:	[2017]: [S.l.] : SSRN
Subject:	Volatilität \| Volatility \| Stochastischer Prozess \| Stochastic process \| Theorie \| Theory

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