O. Zhylyevskyy, “Efficient Pricing of European-Style Options under Heston’s Stochastic Volatility Model,” Theoretical Economics Letters, Vol. 2, No. 1, 2012, pp. 16-20. doi:10.4236/tel.[phone]

has been cited by the following article:

• TITLE: Joint Characteristic Function of Stock Log-Price and Squared Volatility in the Bates Model and Its Asset Pricing Applications

  AUTHORS: Oleksandr Zhylyevskyy

  KEYWORDS: Bates Model; Stochastic Volatility; Jump-Diffusion; Characteristic Function; Option Pricing

  JOURNAL NAME: Theoretical Economics Letters, Vol.2 No.4, November 1, 2012

  ABSTRACT: The model of Bates specifies a rich, flexible structure of stock dynamics suitable for applications in finance and economics, including valuation of derivative securities. This paper analytically derives a closed-form expression for the joint conditional characteristic function of a stock’s log-price and squared volatility under the model dynamics. The use of the function, based on inverting it, is illustrated on examples of pricing European-, Bermudan-, and American-style options. The discussed approach for European-style derivatives improves on the option formula of Bates. The suggested approach for American-style derivatives, based on a compound-option technique, offers an alternative solution to existing finite-difference methods.