Option Pricing with Long Memory Stochastic Volatility Models

Released on by Zhigang Tong
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  • Option Pricing with Long Memory Stochastic Volatility Models Book Detail

  • Author : Zhigang Tong
  • Release Date : 2012
  • Publisher :
  • Genre : Options (Finance)
  • Pages :
  • ISBN 13 : 9780494862469
  • File Size : 78,78 MB
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Option Pricing with Long Memory Stochastic Volatility Models by Zhigang Tong PDF Summary

Book Description: In this thesis, we propose two continuous time stochastic volatility models with long memory that generalize two existing models. More importantly, we provide analytical formulae that allow us to study option prices numerically, rather than by means of simulation. We are not aware about analytical results in continuous time long memory case. In both models, we allow for the non-zero correlation between the stochastic volatility and stock price processes. We numerically study the effects of long memory on the option prices. We show that the fractional integration parameter has the opposite effect to that of volatility of volatility parameter in short memory models. We also find that long memory models have the potential to accommodate the short term options and the decay of volatility skew better than the corresponding short memory stochastic volatility models.

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