Template-Type: ReDIF-Paper 1.0
Title: Option Pricing under Incompleteness and Stochastic Volatility
Author-Name: N. Hofmann
Author-Name: E. Platen
Author-Name: M. Schweizer
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Keywords: ption pricing, stochastic volatility, incomplete markets, 
 equivalent martingale measures, stochastic numerical methods
Abstract: We consider a very general diffusion model for asset prices which 
 allows the description of stochastic and past-dependent volatilities. Since 
 this model typically yields an incomplete market, we show that for the 
 purpose of pricing options, a small investor should use the minimal 
 equivalent martingale measure associated to the underlying stock price 
 process. Then we present stochastic numerical methods permitting the 
 explicit computation of option prices and hedging strategies, and we 
 illustrate our approach by specific examples.
Series: Sonderforschungsbereich 303, University of Bonn, Germany
Length: 49 pages
Creation-Date: 1992-02
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Handle: RePEc:bon:bonsfb:209