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Special Semester on Stochastics with Emphasis on Finance
Linz, September 2008 - December 2008
Presentation: On the impact of correlation on option prices: a Malliavin Calculus approach.

Workshop: Concluding Workshop

Time: Thu, December 04, 2008, 14:00-14:30

Speaker: Elisa Alòs

Abstract

We prove an extension of the Hull and White formula that allows us to describe the impact of correlation on option prices in terms of the Malliavin derivative of the volatility process. This formula does not require the volatility to be a diffusion nor to be Markovian. As an application, we will proof that some non-Markovian volatility process can be efficient to capture the behaviour of the short-time skew slope of observed implied volatilities.

Presentation slides (pdf, 104 KB)

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