| Abstrakt: |
Stochastic volatility models are a variance extension of the classical Black-Scholes model dynamics by introducing an-other auxiliary processes to model the volatility of the underlying asset returns. Here we study the pricing problem for European-style options under a one-factor stochastic volatility model when the volatility of the underlying price is governed by the exponen-tial Ornstein–Uhlenbeck process. The problem can be formulated as a non-stationary second-order degenerate partial differential equation accompanied by initial and boundary conditions, whose analytical solutions are not available in general. Therefore, the approximate option value is obtained by a numerical procedure based on a discontinuous Galerkin technique that provides promising results. Finally, reference numerical experiments are provided with the emphasis on the behaviour of the option values with respect to the discretization parameters. [ABSTRACT FROM AUTHOR] |
