Stochastic market volatility models

Le, T

Stochastic market volatility models

Le, T

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Publisher:: Routledge
Publication Type:: Journal Article
Citation:: Applied Financial Economics Letters, 2005, 1 (3), pp. 177 - 188
Issue Date:: 2005-01

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Field	Value	Language
dc.contributor.author	Le, T	en_US
dc.date.issued	2005-01	en_US
dc.identifier.citation	Applied Financial Economics Letters, 2005, 1 (3), pp. 177 - 188	en_US
dc.identifier.issn	1744-6546	en_US
dc.identifier.uri	http://hdl.handle.net/10453/9936
dc.description.abstract	A new market-based approach to evaluating options on an asset is offered. The model corresponds to the real situations encountered in the market: option prices are not uniquely determined by their underlying asset but mainly by another factor, namely stochastic market volatility (or simply SMV). To begin constructing SMV, it is assumed that there exists a hedging portfolio which replicates perfectly the value of the underlying option. By 'perfectly', it is meant that the value of the hedging portfolio will always equal exactly to the option. The hedging portfolio takes asset price and SMV as its input, therefore, for a given asset price the correct value of SMV gives the correct value for the option. SMV presents the dynamics of options market. We provide the proof of existence and uniqueness of solutions for SMV.	en_US
dc.publisher	Routledge	en_US
dc.relation.ispartof	Applied Financial Economics Letters	en_US
dc.subject.classification	Finance	en_US
dc.subject.classification	Economics	en_US
dc.title	Stochastic market volatility models	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	1	en_US
utslib.for	140207 Financial Economics	en_US
utslib.for	1117 Public Health and Health Services	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.consider-herdc	false	en_US
pubs.issue	3	en_US
pubs.volume	1	en_US

Abstract:

A new market-based approach to evaluating options on an asset is offered. The model corresponds to the real situations encountered in the market: option prices are not uniquely determined by their underlying asset but mainly by another factor, namely stochastic market volatility (or simply SMV). To begin constructing SMV, it is assumed that there exists a hedging portfolio which replicates perfectly the value of the underlying option. By 'perfectly', it is meant that the value of the hedging portfolio will always equal exactly to the option. The hedging portfolio takes asset price and SMV as its input, therefore, for a given asset price the correct value of SMV gives the correct value for the option. SMV presents the dynamics of options market. We provide the proof of existence and uniqueness of solutions for SMV.

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http://hdl.handle.net/10453/9936