A Generalization of Hull and White Formula and Applications to Option Pricing Approximation

UPF Economics and Business Working Paper No. 740

21 Pages Posted: 12 Jul 2004

See all articles by Elisa Alos

Elisa Alos

University of Pompeu Fabra - Department of Economics

Date Written: February 2004

Abstract

By means of Malliavin Calculus we see that the classical Hull and White formula for option pricing can be extended to the case where the noise driving the volatility process is correlated with the noise driving the stock prices. This extension will allow us to construct option pricing approximation formulas. Numerical examples are presented.

Keywords: Continuous-time option pricing model, stochastic volatility, Malliavin Calculus

JEL Classification: G130

Suggested Citation

Alos, Elisa, A Generalization of Hull and White Formula and Applications to Option Pricing Approximation (February 2004). UPF Economics and Business Working Paper No. 740. Available at SSRN: https://ssrn.com/abstract=563324 or http://dx.doi.org/10.2139/ssrn.563324

Elisa Alos (Contact Author)

University of Pompeu Fabra - Department of Economics ( email )

c/o Ramon Trias Fargas 25-27
08005 Barcelona
Spain
34 93 542 19 25 (Phone)
34 93 542 17 46 (Fax)

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