The paper reports on a study of the feedback effects induced by portfolio optimizers on the underlying asset prices. Through their interaction with reference traders, who trade based on some aggregate incomes process, they are assumed to move asset prices away from the standard log-normal model....

Increases in market volatility of asset prices have been observed and analysed in recent years and their cause has generally been attributed to the popularity of portfolio insurance strategies for derivative securities. The basis of derivative pricing is the Black-Scholes model and its use is so...

We consider the pricing and hedging problem for options on stocks whose volatility is a random process. Traditional approaches, such as that of Hull and White, have been successful in accounting for the much observed smile curve, and the success of a large class of such models in this respect is...

We present a derivative pricing and estimation methodology for a class of stochastic volatility models that exploits the observed 'bursty' or persistent nature of stock price volatility. Empirical analysis of high-frequency S&P 500 index data confirms that volatility reverts slowly to its mean...

The skew effect in market implied volatility can be reproduced by option pricing theory based on stochastic volatility models for the price of the underlying asset. Here we study the performance of the calibration of the S&P 500 implied volatility surface using the asymptotic pricing theory...