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Option Prices, Implied Price Processes and Stochastic Volatility



Publishing details

IFA Working Paper

Authors / Editors

Britten-Jones M;Neuberger A J

Publication Year



We provide a simple condition that characterises the set of all continuous spot price processes consistent with a given set of option prices. The condition extends the work of Rubenstein (1994) and Dupire (1994) from a deterministic volatility to a generalised stochastic volatility to be obtained without recourse to a particular option pricing model. We also show how exotic options can be priced consistently with the prices of traded options, in a stochastic volatility setting, using a rapid lattice-based algorithm.

Publication Research Centre

Institute of Finance and Accounting

Series Number

FIN 280


IFA Working Paper

Available on ECCH


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