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Abstract

We prove that the Heston volatility is Malliavin differentiable under the classical Novikovcondition and give an explicit expression for the derivative. This result guarantees theapplicability of Malliavin calculus in the framework of the Heston stochastic volatility model.Furthermore we derive conditions on the parameters which assure the existence of the secondMalliavin derivative of the Heston volatility. This allows us to apply recent results of thefirst author 3 in order to derive approximate option pricing formulas in the context of theHeston model. Numerical results are given.



Item Type: MPRA Paper -

Institution: University of St.Andrews, School of Economics and Finance-

Original Title: Malliavin differentiability of the Heston volatility and applications to option pricing-

Language: English-

Keywords: Malliavin calculus; stochastic volatility models; Heston model; Cox- Ingersoll-Ross process; Hull and White formula; Option pricing-

Subjects: G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures PricingG - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment DecisionsC - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods-





Autor: Alos, Elisa

Fuente: https://mpra.ub.uni-muenchen.de/3237/



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