Analysis of an uncertain volatility model英文文献资料.docVIP

ANALYSISOFANUNCERTAINVOLATILITYMODEL MARCODIFRANCESCO,PAOLOFOSCHI,ANDANDREAPASCUCCI Received11January2006;Revised4September2006;Accepted6September2006 We examine, from both analytical and numerical viewpoints, the uncertain volatility modelbyHobson-RogersintheframeworkofdegenerateparabolicPDEsofKolmogorov type. Copyright?2006MarcoDiFrancescoetal.Thisisanopenaccessarticledistributedun- dertheCreativeCommonsAttributionLicense,whichpermitsunrestricteduse,distribu- tion,andreproductioninanymedium,providedtheoriginalworkisproperlycited. 1.Introduction Several extensions oftheBlack-Scholes model [3]haveappeared intheliterature (see, forasurvey,Epps[6])aimingtocapturethecharacteristic observedpatternsoftheim- pliedvolatilitygivenbythemarket.Hereweareconcernedwiththeseeminglypromising modelproposedbyHobsonandRogers[8]whoassumethatthevolatilityisadetermin- isticfunctionofthehistoryofthespotprocess.Themeritofthemodelistwofold:?rst, itispotentiallyabletoreproducesmiles,skewsofdi?erentdirections,andvolatilityterm structures.Second,itpreservesthecompletenessofthemarketsincenoexogenoussource ofriskisadded,sothattheclassicalarbitrage pricingandhedgingtheoryapply.Inpar- ticular,thereareuniquepreference-independent pricesforclaimsgivenintermsofthe expectation under anequivalent martingale measure orassolutions toaPDE inthree variables.Indeedincorporating thedependenceonpastpricesentailsanadditionalstate variableonwhichthederivative’spricedepends:then,asinthecaseofAsianorlook-back options,theassociatedPDEisofdegenerateparabolictype. In this paper we focus on the analytical and numerical treatment of the Hobson- RogersmodelintheframeworkofKolmogorovPDEs.DegenerateequationsofKolmog- orovtype naturally arise intheproblem ofpricing path-dependent contingent claims. Thesimplestsigni?cantexampleisgivenbyAsian-stylederivatives:ifweassumethatthe stockpriceStisastandardgeometric Brownianmotionwithvolatilityσ,thentheprice UofageometricaverageAsianoptionisasolutiontotheequatio