A multi-stage uncertain-volatility model
نویسنده
چکیده
We consider a simple uncertain-volatility model for the asset price underlying a given option market. The asset price volatility is assumed to follow a discrete (actually finite) Markov chain σ, which changes value on some fixed future times. The volatility chain is independent of the Brownian motion governing the future evolution of the asset. Modeling the volatility evolution in this way is equivalent to assuming different possible scenarios for the asset forward volatility.
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