Stochastic Volatility and Option Pricing in the Brazilian Stock Marke: An Empirical Investigation

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

The stochastic volatility model (SVPS) proposed by Fouque et al. (2000a) explores a rapid timescale fluctuation of the volatility process to end up with a parsimonious way of capturing the volatility smile implied by close to the money options. In this article we test the SVFPS model using options from a Brazilian telecommunications stock. First, we find evidence of fast mean reversion in the volatility process. In addition, to test the model's ability to price options not so close to the money, we extend its statistical estimators to consider, in the calibration process, a wider region for the options moneyness. As an illustration, we price an exotic option.

Original languageEnglish (US)
Pages (from-to)169-206
Number of pages38
JournalJournal of Emerging Market Finance
Volume4
Issue number2
DOIs
StatePublished - Aug 2005
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Option prices
  • mean reversion
  • mean reversion speed
  • stochastic volatility
  • volatility smile

Fingerprint Dive into the research topics of 'Stochastic Volatility and Option Pricing in the Brazilian Stock Marke: An Empirical Investigation'. Together they form a unique fingerprint.

  • Cite this