Alternative form of analytic solution of European option price in model with stochastic volatility driven by Ornstein-Uhlenbeck process using bilateral Laplace transform

G. Christanto, B. D. Handari, H. Tasman

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Bilateral Laplace transform is known for its capability on taking Laplace transform over all real numbers. This paper provides a different approach by using inverse bilateral Laplace transform on deriving analytic solution of European option price formula, both call option and put option. Case of uncorrelated processes between asset price and volatility of Black-Scholes model of asset pricing with stochastic volatility driven by Ornstein-Uhlenbeck process is used to portray price of a risky asset in the market. This paper also provides proof for required formulations to derive the analytic solutions and reference for alternative forms of inverse bilateral Laplace transform.

Original languageEnglish
Title of host publicationProceedings of the 4th International Symposium on Current Progress in Mathematics and Sciences, ISCPMS 2018
EditorsTerry Mart, Djoko Triyono, Ivandini T. Anggraningrum
PublisherAmerican Institute of Physics Inc.
ISBN (Electronic)9780735419155
DOIs
Publication statusPublished - 4 Nov 2019
Event4th International Symposium on Current Progress in Mathematics and Sciences 2018, ISCPMS 2018 - Depok, Indonesia
Duration: 30 Oct 201831 Oct 2018

Publication series

NameAIP Conference Proceedings
Volume2168
ISSN (Print)0094-243X
ISSN (Electronic)1551-7616

Conference

Conference4th International Symposium on Current Progress in Mathematics and Sciences 2018, ISCPMS 2018
CountryIndonesia
CityDepok
Period30/10/1831/10/18

Keywords

  • Black-Scholes model
  • inverse bilateral Laplace transform
  • Ornstein-Uhlenbeck process
  • stochastic volatility

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    Christanto, G., Handari, B. D., & Tasman, H. (2019). Alternative form of analytic solution of European option price in model with stochastic volatility driven by Ornstein-Uhlenbeck process using bilateral Laplace transform. In T. Mart, D. Triyono, & I. T. Anggraningrum (Eds.), Proceedings of the 4th International Symposium on Current Progress in Mathematics and Sciences, ISCPMS 2018 [020025] (AIP Conference Proceedings; Vol. 2168). American Institute of Physics Inc.. https://doi.org/10.1063/1.5132452