Stochastic volatility and the mean reverting process

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Abstract / Description of output

This article employs an approach that is an extension of the Hull and White (1987) model, for pricing European options under the assumption of a mean reverting volatility for the underlying asset. The approach uses a Taylor series expansion method to approximate the price of a European call option in a market with no arbitrage opportunities. The transition to a risk-neutral economy is accomplished by introducing an equivalent martingale measure based on the findings of Romano and Touzi (1997). Numerical results are obtained and compared with similar studies (Lewis, 2000). (C) 2003 Wiley Periodicals, Inc.

Original languageEnglish
Pages (from-to)33-47
Number of pages15
JournalJournal of futures markets
Issue number1
Publication statusPublished - Jan 2003


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