article

Giorgia Callegaro and Lucio Fiorin and Martino Grasselli


Finance Group (2017) : Pricing via Quantization in Stochastic Volatility Models




Pricing via Quantization in Stochastic Volatility Models

Giorgia Callegaro and Lucio Fiorin and Martino Grasselli




article

Quantitative Finance

In this paper we apply a new methodology based on quantization to price options in stochastic volatility models. This method can be applied to any model for which an Euler scheme is available for the underlying process and it allows for pricing vanillas, as well as exotics, thanks to the knowledge of the transition probabilities for the discretized stock process. We apply the methodology to some celebrated stochastic volatility models, including the Stein and Stein (1991) model and the SABR model introduced in Hagan and Woodward (2002). A numerical exercise shows that the pricing of vanillas turns out to be accurate; in addition, when applied to some exotics like equity-volatility options, the quantization-based method overperforms by far the Monte Carlo simulation.

To cite this publication :


Giorgia Callegaro, Lucio Fiorin, Martino Grasselli: Pricing via Quantization in Stochastic Volatility Models. Dans: Quantitative Finance, 17 (6), p. 855-872, 2017.





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