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| Author: | Schöbel, R. Zhu, J. |
| Title: | Stochastic volatility with an Ornstein-Uhlenbeck process: An extension |
| Journal: | European Finance Review
1999 : VOL. 3:1, p. 23-46 |
| Index terms: | Stochastic processes Financial theory Share price volatility |
| Language: | eng |
| Abstract: | The authors reexamine and extend the stochastic volatility model of Stein and Stein (1991) where volatility follows a mean-reverting Ornstein-Uhlenbeck process. Using Fourier inversion techniques they are able to allow for correlation between instantaneous volatilities and the underlying stock returns. A closed-form pricing solution for European options is derived and some numerical examples are given. |
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