Option Prices, Implied Price Processes and Stochastic Volatility
Subject
Finance
Publishing details
IFA Working Paper
Publication Year
1998
Abstract
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
Series
IFA Working Paper
Available on ECCH
No
