An advanced treatment of option pricing, focusing on the role of stochastic volatility, geared for traders, money managers and researchers. Covers the new generation of option models where both the stock price and its volatility follow diffusion processes, explaining important features of real-world option pricing. Includes many illustrations and Mathematica code for the most important formulas.
Introduction and Summary of Results | The Fundamental Transform | The Volatility of Volatility Series Expansion | Mixing Solutions and Applications | The Smile | The Term Structure of Implied Volatility | Utility-Based Equilibrium Models | Duality and Changes of Numeraire | Volatility Explosions and the Failure of the Martingale Pricing Formula | Options Prices at Large Volatility | Solutions to Models
Economics and Finance