Continuous Time Stochastic Volatility Option Pricing: Foundational Issues

  • Fabio Fornari
  • Antonio Mele
Part of the Dynamic Modeling and Econometrics in Economics and Finance book series (DMEF, volume 3)

Abstract

The past decade has witnessed a growing research interest in option pricing under constrained market participation. This chapter fucuses on issues related to market incompleteness due to the presence of continuous time stochastic volatility. When markets are incomplete, the value of a contingent claim is generally not attainable with a truly self-financing trading strategy, and absence of arbitrage opportunities is not sufficient to recover a unique rational price function of the claim, as in the celebrated Black and Scholes (1973) case.

Keywords

Entropy Filtration Hull Volatility Hedging 

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Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

  • Fabio Fornari
    • 1
  • Antonio Mele
    • 2
    • 3
  1. 1.Bank of ItalyItaly
  2. 2.Université du LittoralCanada
  3. 3.THEMAUniversité de Paris XFrance

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