December 2015
Intermediate to advanced
522 pages
20h
English
Content preview from Stochastic Volatility Modeling
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148 Stochastic volatility modeling
set of values of
p
for which prices of power payos are nite, hence the
ξ
pT
t=0
are
well-dened. Is it possible to generate a joint dynamics for S
t
and a set of ξ
p
t
?
A solution to SDEs (4.31) for a given
p
∗
provides the full dynamics of
S
t
, hence
prices for power payos and a dynamics for variance curves
ξ
p
t
with
p 6= p
∗
. If our
objective is to be able to independently set the initial values of variances curves for
multiple values of
p
, this implies that information about initial curves
ξ
p
t=0
has to be
embedded in the SDE (4.31b) for
ξ
p
∗
t
. It is not clear how this can be done practically.
The joint dynamics of multiple variance cur ...
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