A generalization of the Hull and White formula with applications to option pricing approximation
type: Item
instance of: scholarly article
title: A generalization of the Hull and White formula with applications to option pricing approximation
zbMATH Open document ID: 1101.60044
author: Elisa Alòs
published in: Finance and Stochastics
publication date: 2006-12-08T00:00:00Z
review text: The main goal of this paper is to obtain a new generalization of the classical Hull and White formula to the correlated case. The basic idea is to expand option prices around the classical Hull and White expression by means of the Malliavin calculus. It becomes a natural tool for this problem, where the average future volatility is not adapted. This approach does not reduce the dimensionality of the problem, but it decomposes option prices as a sum of the same derivative price if there were no correlation and a correction due to correlation. This decomposition allows studying the effect of correlation on the option prices.
reviewed by: Yuliya S. Mishura
Mathematics Subject Classification ID: 60H30
Mathematics Subject Classification ID: 60H07
Mathematics Subject Classification ID: 91G20
zbMATH DE Number: 5079145
zbMATH Keywords: continuous-time option pricing model
zbMATH Keywords: stochastic volatility
zbMATH Keywords: Malliavin calculus
MaRDI profile type: Publication
full work available at URL: s00780-006-0013-5
OpenAlex ID: W3124342673
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DOI: 10.1007/S00780-006-0013-5
description: scientific article; zbMATH DE number 5079145