Publication
Title
On the valuation of fader and discrete barrier options in Heston's stochastic volatility model
Author
Abstract
We focus on closed-form option pricing in Heston's stochastic volatility model, where closed-form formulas exist only for a few option types. Most of these closed-form solutions are constructed from characteristic functions. We follow this closed-form approach and derive multivariate characteristic functions depending on at least two spot values for different points in time. The derived characteristic functions are used as building blocks to set up (semi-) analytical pricing formulas for exotic options with payoffs depending on finitely many spot values such as fader options and discretely monitored barrier options. We compare our result with different numerical methods and examine the computational accuracy.
Language
English
Source (journal)
Quantitative finance. - London
Publication
London : 2011
ISSN
1469-7688
Volume/pages
11:5(2011), p. 693-709
ISI
000290412400004
Full text (Publisher's DOI)
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Publication type
Subject
External links
Web of Science
Record
Identification
Creation 02.03.2015
Last edited 13.07.2017