A Note on Option Pricing with the Use of Discrete-Time Stochastic Volatility Processes

• Authors: Anna Pajor
• Languages of publication: EN

Abstracts

EN

In this paper we show that in the lognormal discrete-time stochastic volatility model with predictable conditional expected returns, the conditional expected value of the discounted payoff of a European call option is infinite. Our empirical illustration shows that the characteristics of the predictive distributions of the discounted payoffs, obtained using Monte Carlo methods, do not indicate directly that the expected discounted payoffs are infinite.

Keywords

EN

option pricing; SV model; Bayesian forecasting

• Publisher: Polska Akademia Nauk Oddział w Łodzi
• Journal: Central European Journal of Economic Modelling and Econometrics
• Year: 2009
• Volume: 1
• Issue: 1
• Pages: 71-81

Dates

received

2008-09-04

accepted

2009-01-20

Contributors

author

Anna Pajor

• Cracow University of Economics