Option Pricing in Stochastic Volatility Models of the Ornstein-Uhlenbeck type

Stochastic volatility models of the Ornstein-Uhlenbeck type possess authentic capability of capturing some stylized features of financial time series. In this work we investigate this class of models from the viewpoint of derivative asset analysis. We discuss topics related to the incompleteness of this type of market. In particular, for structure preserving martingale measures, we derive the price of simple European-style contracts in closed form. Furthermore, the range of viable prices is determined and an empirical application is presented.