Stochastic Volatility Models
Description:
The purpose of the project is to study the theory behind the Black & Scholes formula and various volatility models, with a practical application to option pricing.
Prerequisites:
The student should be at ease with both probability and Matlab programming.
References:
D. Lamberton, B. Lapeyre, “Introduction au calcul stochastique applique a la finance”, Ellipses, 1997.
S. A. Hesten, “A Closed-Fom Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options”, The Review of Financial Studies, Vol . 6, No 2, 1993.
E. Derman, I. Kani, “Stochastic Implied Trees: Arbitrage Pricing with Stochastic Term and Strike Structure of Volatility”, International Journal of Theoretical and Applied Finance (IJTAF), Vol. 1, No 1, January 1998, pp. 61 - 110.
Supervisor:
Olivier Lévêque (LTHI) * Email: olivier.leveque#epfl.ch * Office: INR-132 * tel: 38112