|Date: Wednesday, February 03, 2016
Location: 1360 East Hall (4:00 PM to 5:00 PM)
Title: Small-time asymptotics for fast mean-reverting stochastic volatility models
Abstract: We use stochastic volatility models, with fast mean-reverting volatility, to price out-of-the-money (OTM) European call options near maturity. The regime of interest is when time to maturity is small, but large compared to the mean-reversion time of the stochastic volatility. The different time scales of mean-reversion and time to maturity makes this a multi scale problem. To obtain asymptotics of the OTM option price and the corresponding implied volatility, we first prove a large deviation principle for stock price, as time to maturity approaches zero. The large deviation principle is obtained by PDE techniques rather than probabilistic methods. Due to the mutli-scale nature of the problem, the PDE techniques involve averaging viscosity solutions of nonlinear PDEs.
This is joint work with Jean-Pierre Fouque, Jin Feng and Lea Popovic.
Speaker: Rohini Kumar
Institution: Wayne State University
Event Organizer: Erhan Bayraktar email@example.com