| CIRJE-F-596 | "Probability Distribution and Option Pricing for Drawdown in a Stochastic Volatility Environment" |
| Author Name | Yamamoto, Kyo, Seisho Sato, and Akihiko Takahashi |
| Date | October 2008 |
| Full Paper | @ |
| Remarks | Revised as CIRJE-F-625 (2009); subsequentlhy publishe in International Journal of Theoretical and Applied Finance Volume: 13, Issue: 2, pp335-354, 2010; electronic version of an article was published in International Journal of Theoretical and Applied Finance c [copyright World Scientific Publishing Company] |
| Abstract |
This paper studies the probability distribution and option pricing for drawdown in a stochastic volatility environment. We derive an analytical approximation formula for them by applying a singular perturbation method ([12]). Then, numerical examples show that the instantaneous correlation between the asset value and the volatility state crucially affects the probability distribution and option prices for drawdown. |