Stock Evolution under Stochastic Volatility: A Discrete Approach

This paper examines the pricing of options by approximating extensions of the Black-Scholes setup in which volatility follows a separate diffusion process. It gereralizes the well-known binomial model, constructing a discrete two-dimensional lattice. We discuss convergence issues extensively and calculate prices and implied volatilities for European- and American-style put options.

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Authors:	Leisen, Dietmar P.J.
Institutions:	University of Bonn, Germany
Subject:	binomial model \| option valuation \| lattice approach \| stochastic volatility

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Extent:	application/pdf application/postscript
Series:	Discussion Paper Serie B.
Type of publication:	Book / Working Paper
Language:	English
Notes:	16 pages
Classification:	G13 - Contingent Pricing; Futures Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004968228