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
Institutions:	Wirtschaftswissenschaftlichen Fakultät, Eberhard-Karls-Universität Tübingen

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Extent:	application/pdf
Series:	Tübinger Diskussionsbeiträge.
Type of publication:	Book / Working Paper
Notes:	Number 139
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011097477