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A comparison of option prices under different pricing measures in a stochastic volatility model with correlation

Abstract:

This paper investigates option prices in an incomplete stochastic volatility model with correlation. In a general setting, we prove an ordering result which says that prices for European options with convex payoffs are decreasing in the market price of volatility risk. As an example, and as our main motivation, we investigate option pricing under the class of $q$-optimal pricing measures. The $q$-optimal pricing measure is related to the marginal utility indifference price of an agent with c...

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Publication date:
2003-03-20
URN:
uuid:0918876f-02f4-4d35-8408-784e290b9c52
Local pid:
oai:eprints.maths.ox.ac.uk:134

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