The DOI matches its Crossref record; 1 of the 1 references it cites were found in a registry or an index.
A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options
Abstract
I use a new technique to derive a closed-form solution for the price of a European call option on an asset with stochastic volatility. The model allows arbitrary correlation between volatility and spot-asset returns. I introduce stochastic interest rates and show how to apply the model to bond options and foreign currency options. Simulations show that correlation between volatility and the spot asset's price is important for explaining return skewness and strike-price biases in the Black-Scholes (1973) model. The solution technique is based on characteristic functions and can be applied to other problems
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Citations
Cites
The pricing of options and corporate liabilities
Black, F., & Scholes, M. (1973) · Journal of Political Economy · doi:10.1086/260062 · Cited by 29,074
Cited by
Forecasting Volatility in Financial Markets: A Review
Poon, S., & Granger, C. W. J. (2003) · Journal of Economic Literature · doi:10.1257/002205103765762743 · Cited by 1,315
Predicting Volatility in the Foreign Exchange Market
JORION, P. (1995) · The Journal of Finance · doi:10.1111/j.1540-6261.1995.tb04793.x · Cited by 722
Estimating quadratic variation using realized variance
Barndorff‐Nielsen, O. E., & Shephard, N. (2002) · Journal of Applied Econometrics · doi:10.1002/jae.691 · Cited by 616
Option valuation with conditional skewness
Christoffersen, P., Heston, S., & Jacobs, K. (2006) · Journal of Econometrics · doi:10.1016/j.jeconom.2005.01.010 · Cited by 281
Self-citationDeep Hedging: Hedging Derivatives Under Generic Market Frictions Using Reinforcement Learning
Buehler, H., Gonon, L., Teichmann, J., Wood, B., Mohan, B., & Kochems, J. (2019) · doi:10.2139/ssrn.3355706 · Cited by 48
Metadata
- Authors
- Heston, S. L.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 1993-04
- Volume
- 6
- Issue
- 2
- Pages
- 327-343
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W2064978316
- Cited by
- 8,762
- References
- 1
- FWCI
- 37.17
- Type
- journal article
- Language
- en
- Open access
- closed
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- Heston, S. L. (1993). A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options. Review of Financial Studies. https://doi.org/10.1093/rfs/6.2.327
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
