Description:
The purpose of the project is to study various volatility models in the Black & Scholes framework, with a practical application to option pricing. More specifically, the idea is to develop and analyze a new model of implicit volatility, based on hitting times.

Prerequisites:
The student should have a prior knowledge of stochastic calculus.

References:
[1] 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.

[2] 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

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