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Extensions of the SABR Model for Equity Options
Khomasuridze, Irakli (2009) Extensions of the SABR Model for Equity Options.
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| Abstract: | Modeling of stock price behavior (dynamic) is key concept in option theory, as based on chosen model one can further derive prices for options on underlying assets. It is more then obvious that the better model reflects real asset dynamics, the better option pricing will be. This thesis discusses pricing of equity options using extension of "classical" SABR model. The key idea of this extension is that we assume that volatility is not only stochastic but also has non zero drift term. Drift term is chosen to be mean reverting, i.e. we assume that volatility is constantly pushed to some function with predefined mean reverting rate, while diffusion term is chosen to be similar to the one under "classical" SABR model. |
| Item Type: | Essay (Master) |
| Faculty: | EEMCS: Electrical Engineering, Mathematics and Computer Science |
| Subject: | 31 mathematics |
| Programme: | Applied Mathematics MSc (60348) |
| Link to this item: | http://purl.utwente.nl/essays/59228 |
| Export this item as: | BibTeX EndNote HTML Citation Reference Manager |
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