Option Valuation and Hedging Strategies with Jumps in the Volatility of Asset Returns

  • Author(s): VASANTTILAK NAIK
  • Published: Apr 30, 2012
  • Pages: 1969-1984
  • DOI: 10.1111/j.1540-6261.1993.tb05137.x

ABSTRACT

We develop a model in which the volatility of risky assets is subject to random and discontinuous shifts over time. We derive prices of claims contingent on such assets and analyze options‐based trading strategies to hedge against the risk of jumps in the return volatility. Unsystematic and systematic events such as takeovers, major changes in business plans, or shifts in economic policy regimes may drastically alter firms' risk profiles. Our model captures the effect of such events on options markets.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version