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Probability Distribution and Option Pricing for Drawdown in a Stochastic Volatility Environmen
Yamamoto, Kyo
98881
Seisho, Sato
98882
Akihiko, Takahashi
98883
335
application/pdf
This paper studies the probability distribution and option pricing for drawdown in a stochastic volatility environment. Their analytical approximation formulas are derived by the application of a singular perturbation method (Fouque et al. [7]). The mathematical validity of the approximation is also proven. Then, numerical examples show that the instantaneous correlation between the asset value and the volatility state crucially affects the probability distribution and option prices for drawdown.
Revised Version of CIRJE-F-596 (2008); electronic version of an article will be published in International Journal of Theoretical and Applied Finance c [copyright World Scientific Publishing Company][http://www.worldscinet.com/ijtaf/]
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technical report
日本経済国際共同センター
2009-06
Discussion paper series. CIRJE-F
CIRJE-F-625
AA11450569
eng
http://www.cirje.e.u-tokyo.ac.jp/research/dp/2009/2009cf625ab.html
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