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A General Framework for the Derivation of Asset Price Bounds: An Application to Stochastic Volatility Option Model
University of Tromsø, Norway.ORCID iD: 0000-0002-1097-3784
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
Abstract [en]

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.
Keyword [en]
Option pricing, Incomplete markets, Good-deal bounds, Benchmark stochastic discount factor, Stochastic volatility model, Continuous time
National Category
Economics and Business
Research subject
URN: urn:nbn:se:su:diva-127386DOI: 10.1007/s11147-009-9032-7OAI: diva2:908593
Available from: 2016-03-02 Created: 2016-03-02 Last updated: 2016-03-02Bibliographically approved

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Longarela, Iñaki R.
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ReferencesLink to record
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