Journal of Mathematics and Modeling in Finance

Estimating the parameters of 3/2 stochastic volatility model with jump

Document Type : Research Article

Authors

Ali Safdari-Vaighani 1
Pooya Garshasebi 2

1 Department of mathematics, Allameh Tabataba’i University, Tehran, Iran

2 Department of Mathematics, Allameh Tabataba'i University, Tehran, Iran.

https://doi.org/10.22054/jmmf.2023.75272.1101
Abstract
The financial markets reveal stylized facts that could not be captured by Black-Scholes partial differential equations (PDEs).  In this research, we investigate 3/2 stochastic volatility to pricing options which is more compatible with the interpretation of implied volatility. Numerical study and calibrations show that the 3/2 model incorporating jumps effectively encompasses key market characteristics attributed. However, it requires more estimating parameters in comparison to the pure diffusion model. Stochastic volatility models with jumps describe the log return features of the financial market although more parameters are involved in estimations.

Keywords

Black-Scholes model
Stochastic volatility models
3/2 model
3/2 plus jump model
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Journal of Mathematics and Modeling in Finance
Volume 3, Issue 1
September 2023
Pages 137-143

  • Receive Date 05 May 2023
  • Revise Date 15 August 2023
  • Accept Date 01 September 2023

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