Tagged Questions
6
votes
1answer
187 views
Why does the price of a derivative not depend on the derivative with which you hedge volatility risk?
I'm trying to derive the valuation equation under a general stochastic volatility model.
What one can read in the literature is the following reasoning:
One considers a replicating self-financing ...
10
votes
0answers
324 views
Law of an integrated CIR Process as sum of Independent Random Variables
It is known (see for example Joshi-Chan "Fast and Accureate Long Stepping Simulation of the Heston SV Model" available at SSRN) that for a CIR process defined as :
$$dY_t= \kappa(\theta -Y_t)dt+ ...
6
votes
0answers
213 views
Transformation of Volatility - BS
I have recently seen a paper about the Boeing approach that replaces the "normal" Stdev in the BS formula with the Stdev
\begin{equation}
\sigma'=\sqrt{\frac{ln(1+\frac{\sigma}{\mu})^{2}}{t}}
...
