A General Decomposition Formula for Derivative Prices in Stochastic Volatility Models

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Alòs, Elisa. A General Decomposition Formula for Derivative Prices in Stochastic Volatility Models. 2005

Title:	A General Decomposition Formula for Derivative Prices in Stochastic Volatility Models
Author:	Alòs, Elisa
Other authors:	Universitat Pompeu Fabra. Departament d'Economia i Empresa
Abstract:	We see that the price of an european call option in a stochastic volatility framework can be decomposed in the sum of four terms, which identify the main features of the market that affect to option prices: the expected future volatility, the correlation between the volatility and the noise driving the stock prices, the market price of volatility risk and the difference of the expected future volatility at different times. We also study some applications of this decomposition.
Document type:	Working paper
Date:	2005
Rights:	Aquest document està subjecte a una llicència d'ús de Creative Commons, amb la qual es permet copiar, distribuir i comunicar públicament l'obra sempre que se'n citin l'autor original, la universitat i el departament i no se'n faci cap ús comercial ni obra derivada, tal com queda estipulat en la llicència d'ús (http://creativecommons.org/licenses/by-nc-nd/2.5/es/)