Analytical approximation of European option prices under a new two-factor non-affine stochastic volatility model

Autor: Shou-de Huang, Xin-Jiang He
Jazyk: angličtina
Rok vydání: 2023
Předmět:
Zdroj: AIMS Mathematics, Vol 8, Iss 2, Pp 4875-4891 (2023)
Druh dokumentu: article
ISSN: 2473-6988
DOI: 10.3934/math.2023243?viewType=HTML
Popis: In this paper, the pricing of European options under a new two-factor non-affine stochastic volatility model is studied. In order to reduce the computational complexity, we use the Taylor expansion and Fourier-cosine method to derive an analytical approximation formula for European option prices. Numerical experiments prove that the proposed formula is fast and efficient for pricing European options compared with Monte Carlo simulations. The sensitivity of the parameters is analyzed to explain the rationality of the model. Finally, we present some preliminary empirical analysis revealing that the pricing performance of our proposed model is superior to that of the single-factor model.
Databáze: Directory of Open Access Journals