Partial derivative approach for option pricing in a simple stochastic volatility model

  • M. Montero


We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model has already been introduced in the literature. We present a new approach to the problem, based on partial differential equations, which gives a different perspective to the issue. Within our framework we can easily consider several forms for the market price of volatility risk, and interpret their financial meaning. We thus recover solutions previously mentioned in the literature as well as obtaining new ones.


Spectroscopy Differential Equation Neural Network State Physics Complex System 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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© Springer-Verlag Berlin/Heidelberg 2004

Authors and Affiliations

  1. 1.Departament de Física FonamentalUniversitat de BarcelonaBarcelonaSpain

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