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Pricing models: stochastic volatility
Special Events| Speaker: | Michael Sullivan, University of Michigan |
| Location: | 593 Kerr |
| Start time: | Thu, Jan 30 2003, 1:40PM |
Description
The celebrated Black-Scholes formula for pricing stock options
assumes that the stock volatility is constant.
Much empirical evidence demonstrates such an assumption
to be faulty. I will discuss ways in which the Black-Scholes model
has been modified to allow the volatility to be stochastic.
This includes joint work with J. Conlon which shows how
close the Black-Scholes price is to the true price when
certain assumptions are made for the volatility process.