Local volatility in the Heston model: a Malliavin calculus approach

Ewald, C.-O. (2005) Local volatility in the Heston model: a Malliavin calculus approach. Journal of Applied Mathematics and Stochastic Analysis, 2005(3), pp. 307-322. (doi:10.1155/JAMSA.2005.307)

[img]
Preview
Text
Ewald53854.pdf

197kB

Publisher's URL: http://dx.doi.org/10.1155/JAMSA.2005.307

Abstract

We implement the Heston stochastic volatility model by using multidimensional Ornstein-Uhlenbeck processes and a special Girsanov transformation, and consider the Malliavin calculus of this model. We derive explicit formulas for the Malliavin derivatives of the Heston volatility and the log-price, and give a formula for the local volatility which is approachable by Monte-Carlo methods.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ewald, Professor Christian
Authors: Ewald, C.-O.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Applied Mathematics and Stochastic Analysis
ISSN:1048-9533
ISSN (Online):1687-2177
Copyright Holders:Copyright © 2005 Hindawi Publishing Corporation
First Published:First published in Journal of Applied Mathematics and Stochastic Analysis 2005(3):307-322
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

University Staff: Request a correction | Enlighten Editors: Update this record