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2007•Journal of Hunan University of Arts and ScienceRequires access

Foreign Equity Options Pricing with Stochastic Vatility

Gong Ri-zhao

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Abstract

This paper studies the pricing of Foreign Equity Options on Stochastic Vatility models. By using martingale pricing methods and Feynman-Kac formula, we showed the stochastic differential equation which the options must be satisfied and the general pricing expressions. Further more, when the stochastic vatility is Geometric Brown motion, by means of martingale analysis, the general pricing formula is obtained.

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This paper studies the pricing of Foreign Equity Options on Stochastic Vatility models. By using martingale pricing methods and Feynman-Kac formula, we showed the stochastic differential equation which the options must be satisfied and the general pricing expressions. Further more, when the stochastic vatility is Geometric Brown motion, by means of martingale analysis, the general pricing formula is obtained.

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Available abstract

This paper studies the pricing of Foreign Equity Options on Stochastic Vatility models. By using martingale pricing methods and Feynman-Kac formula, we showed the stochastic differential equation which the options must be satisfied and the general pricing expressions. Further more, when the stochastic vatility is Geometric Brown motion, by means of martingale analysis, the general pricing formula is obtained.

Key concepts: Martingale pricing, Martingale (probability theory), Stochastic differential equation, Equity (law), Mathematical economics, Stochastic discount factor, Finite difference methods for option pricing, Valuation of options

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