Stochastic volatility with an Ornstein-Uhlenbeck process: An extension

In this paper, we reexamine and extend the stochastic volatility model of Stein and Stein (1991) where volatility follows a mean-reversion Ornstein-Uhlenbeck process. Using Fourier inversion techniques we are able to allow for correlation between instan-taneous volatilities and the underlying stock returns. A closed-form pricing Solution for European options is derived and some numerical examples are given.

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Year of publication:	1998
Authors:	Schöbel, Rainer ; Zhu, Jianwei
Publisher:	Tübingen : Eberhard Karls Universität Tübingen, Wirtschaftswissenschaftliche Fakultät
Subject:	Börsenkurs \| Volatilität \| Stochastischer Prozess \| Optionspreistheorie \| Theorie

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Series:	Tübinger Diskussionsbeiträge ; 139
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	796884390 [GVK] hdl:10419/104833 [Handle] RePEc:zbw:tuedps:139 [RePEc]
Source:	EconStor

Persistent link: https://www.econbiz.de/10010435470