The α-Hypergeometric Stochastic Volatility Model

24 Pages Posted: 19 Sep 2014

See all articles by José Da Fonseca

José Da Fonseca

Auckland University of Technology - Faculty of Business & Law

Claude Martini

Zeliade Systems

Date Written: September 18, 2014

Abstract

The aim of this work is to introduce a new stochastic volatility model for equity derivatives. To overcome some of the well-known problems of the Heston model, and more generally of the affine models, we define a new specification for the dynamics of the stock and its volatility. Within this framework we develop all the key elements to perform the pricing of vanilla European options as well as of volatility derivatives. We clarify the conditions under which the stock price is a martingale and illustrate how the model can be implemented.

Keywords: Equity stochastic volatility models, Volatility derivatives, European option pricing.

JEL Classification: G12, G13, C52

Suggested Citation

Da Fonseca, José and Martini, Claude, The α-Hypergeometric Stochastic Volatility Model (September 18, 2014). Available at SSRN: https://ssrn.com/abstract=2497696 or http://dx.doi.org/10.2139/ssrn.2497696

José Da Fonseca (Contact Author)

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand
64 9 921 9999 5063 (Phone)

Claude Martini

Zeliade Systems ( email )

Paris
France

HOME PAGE: http://www.zeliade.com

Register to save articles to
your library

Register

Paper statistics

Downloads
58
Abstract Views
614
rank
357,884
PlumX Metrics