A Path Integral Approach to Option Pricing with Stochastic Volatility: Some Exact Results

Details A Path Integral Approach to Option Pricing with Stochastic Volatility: Some Exact Results A Path Integral Approach to Option Pricing with Stochastic Volatility: Some Exact Results

1997-08-22

arxiv.org/abs/cond-mat/9708178v1

Physics

Condensed Matter

Needs subeqnarray.sty. To appear in J. de Phys. I (Dec 97)

Scientific paper

10.1051/jp1:1997167

The Black-Scholes formula for pricing options on stocks and other securities has been generalized by Merton and Garman to the case when stock volatility is stochastic. The derivation of the price of a security derivative with stochastic volatility is reviewed starting from the first principles of finance. The equation of Merton and Garman is then recast using the path integration technique of theoretical physics. The price of the stock option is shown to be the analogue of the Schrodinger wavefuction of quantum mechacnics and the exact Hamiltonian and Lagrangian of the system is obtained. The results of Hull and White are generalized results for pricing stock options for the general correlated case are derived.

Affiliated with

Also associated with

No associations

Rating

A Path Integral Approach to Option Pricing with Stochastic Volatility: Some Exact Results does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with A Path Integral Approach to Option Pricing with Stochastic Volatility: Some Exact Results, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and A Path Integral Approach to Option Pricing with Stochastic Volatility: Some Exact Results will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-136488