Pricing joint claims on an asset and its realised variance in stochastic volatility models

Torricelli, Lorenzo (2013): Pricing joint claims on an asset and its realised variance in stochastic volatility models. In: International Journal of Theoretical and Applied Finance, Bd. 16, Nr. 01, 1350005

Abstract

In the setting of a stochastic volatility model, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This provides a pricing tool for European-style claims paying off at maturity a joint function of the underlying and its realized volatility or variance. We study the solution under various specific stochastic volatility models, give a formula for the computation of the delta and gamma of these claims, and introduce some new interesting payoffs that can be valued by means of the general pricing equation. Numerical results are given and compared to those from plain vanilla derivatives.

• Dokumententyp: Zeitschriftenartikel
• Fakultät: Mathematik, Informatik und Statistik > Mathematik > Finanz- und Versicherungsmathematik
• Themengebiete: 500 Naturwissenschaften und Mathematik > 510 Mathematik
• ISSN: 0219-0249
• Sprache: Englisch