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dc.contributor.authorDokuchaev, Nikolai
dc.date.accessioned2017-01-30T12:12:32Z
dc.date.available2017-01-30T12:12:32Z
dc.date.created2011-07-20T20:01:10Z
dc.date.issued2011
dc.identifier.citationDokuchaev, Nikolai. 2011. Option pricing via maximization over uncertainty and correction of volatility smile. International Journal of Theoretical and Applied Finance (IJTAF). 14 (4): pp. 507-524.
dc.identifier.urihttp://hdl.handle.net/20.500.11937/19216
dc.identifier.doi10.1142/S0219024911006711
dc.description.abstract

The paper presents a pricing rule for market models with stochastic volatility and with an uncertainty in its evolution law. It is shown that the most common stochastic volatility models allow a possibility that the option price calculated for random volatility with an error in volatility forecasts is lower than the price for the market with zero error of volatility forecast. To eliminate this possibility, we suggest a pricing rule based on maximization of the price via a class of possible equivalent risk-neutral measures. It shown that, in a Markovian setting, this pricing rule requires to solve a parabolic Bellman equation. Some existence results and a priory estimates are obtained for this equation.

dc.publisherWorld Scientific
dc.subjectuncertain volatility
dc.subjectstochastic volatility
dc.subjectHamilton–Jacobi–Bellman equation
dc.subjectvolatility smile
dc.subjectDiffusion market model
dc.titleOption pricing via maximization over uncertainty and correction of volatility smile
dc.typeJournal Article
dcterms.source.volume14
dcterms.source.number4
dcterms.source.startPage507
dcterms.source.endPage524
dcterms.source.issn0219-0249
dcterms.source.titleInternational Journal of Theoretical and Applied Finance
curtin.note

This is an electronic version of an article published in the International Journal of Theoretical and Applied Finance (IJTAF), 14, 4, 2011, 507-524. http://dx.doi.org/10.1142/S0219024911006711 Copyright © World Scientific Publishing Company. http://www.worldscinet.com/ijtaf/

curtin.departmentDepartment of Mathematics and Statistics
curtin.accessStatusOpen access


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