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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

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.