A General Framework for the Derivation of Asset Price Bounds: An Application to Stochastic Volatility Option Model
2009 (English)In: Review of Derivatives Research, ISSN 1380-6645, E-ISSN 1573-7144, Vol. 12, no 2, 81-107 p.Article in journal (Refereed) Published
We present a generalization of Cochrane and Saá-Requejo’s good-deal bounds which allows to include in a flexible way the implications of a given stochas- tic discount factor model. Furthermore, a useful application to stochastic volatility models of option pricing is provided where closed-form solutions for the bounds are obtained. A calibration exercise demonstrates that our benchmark good-deal pricing results in much tighter bounds. Finally, a discussion of methodological and economic issues is also provided.
Place, publisher, year, edition, pages
2009. Vol. 12, no 2, 81-107 p.
Option pricing, Incomplete markets, Good-deal bounds, Benchmark stochastic discount factor, Stochastic volatility model, Continuous time
Economics and Business
Research subject Economics
IdentifiersURN: urn:nbn:se:su:diva-127386DOI: 10.1007/s11147-009-9032-7OAI: oai:DiVA.org:su-127386DiVA: diva2:908593