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dc.contributor.authorPhewchean, N
dc.contributor.authorWu, Yong Hong
dc.contributor.authorLenbury, Y
dc.date.accessioned2017-01-30T11:31:42Z
dc.date.available2017-01-30T11:31:42Z
dc.date.created2014-03-30T20:00:57Z
dc.date.issued2013
dc.identifier.citationPhewchean, N and Wu, Y H and Lenbury, Y. 2013. Option pricing under stochastic environment of volatility and market price of risk. International Journal of Mathematical Models and Methods in Applied Sciences. 7 (11): pp. 927-935.
dc.identifier.urihttp://hdl.handle.net/20.500.11937/12611
dc.description.abstract

Since Black-Scholes model was proposed in 1973, it has been applied widely for option pricing. The aim of this paper is to develop European option pricing model taking into account stochastic volatility and stochastic market price of risk (MPR) under the framework of Black-Scholes. Both volatility and market price of risk are assumed to be stochastic and assumed to follow Ornstein-Uhlenbeck process. By using an analytical approach of Abraham Loui, explicit formulas are derived for European call and put option prices. Sensitivity of option price to model parameters are tested and the simulation results show the strong characteristic of stochastic model.

dc.publisherNorth Atlantic University Union (N A U N)
dc.relation.urihttp://www.naun.org/main/NAUN/ijmmas/k042001-242.pdf
dc.subjectBlack-Scholes model
dc.subjectStochastic volatility
dc.subjectStochastic market price of risk
dc.subjectOrnstein-Uhlenbeck process
dc.subjectEuropean option pricing model
dc.titleOption pricing under stochastic environment of volatility and market price of risk
dc.typeJournal Article
dcterms.source.volume7
dcterms.source.number11
dcterms.source.startPage927
dcterms.source.endPage935
dcterms.source.issn19980140
dcterms.source.titleInternational Journal of Mathematical Models and Methods in Applied Sciences
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Copyright © 2013 North Atlantic University Union (NAUN). All rights reserved.

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