Author(s)

Zhang Haocheng ¹

Affiliation(s)

¹ University of Michigan, Ann Arbor, MI, 48109, U.S.A.

Corresponding Author

Zhang Haocheng

ABSTRACT

In the study of volatility in financial markets, stochastic volatility model has become an important tool in the field of derivatives pricing with its unique theoretical perspective and strong empirical explanatory power. Aiming at the pricing problem of financial derivatives, this paper systematically analyzes the theoretical basis and application method of stochastic volatility model. Through the in-depth discussion of model construction, parameter estimation strategy and its practical application in derivatives pricing, this paper reveals the significant effect of stochastic volatility model in improving pricing accuracy and enhancing risk management ability. The paper also points out the limitations of the model in dealing with the pricing of derivatives in different market environments, and puts forward the corresponding improvement direction. The results show that the stochastic volatility model has a wide application prospect in the financial derivatives market and is of great significance in promoting the innovation and development of financial theory and practice.

KEYWORDS

Stochastic volatility model; Pricing of financial derivatives; Parameter estimation; Risk management

CITE THIS PAPER

Zhang Haocheng, Analysis of Stochastic Volatility Models in Financial Derivatives Pricing. Financial Engineering and Risk Management (2024) Vol. 7: 80-84. DOI: http://dx.doi.org/10.23977/ferm.2024.070611.

REFERENCES

[1] Li Chenxu. Implicit Stochastic Volatility Model: Building a data-driven pricing model for financial derivatives [J]. Tsinghua Financial Review, 2022(4):97-98.
[2] Wang Han, Li Chenxu. Multi-factor pricing model of exchange rate derivatives [J]. Journal of Economic Management, 2023,2(2):155-196. (in Chinese)
[3] Zhao Shengmin, Feng Meifang. Credit risk, financing cost and initial margin financing cost [J]. Statistics and Information Forum, 2019, 38(10):35-45. (in Chinese)
[4] Wang Jie, Lu Wujun, Zhuo Saiwei. Pension portfolio under complete market and uncertain risk [J]. Journal of Donghua University (Natural Science Edition), 2019, 50(2):160-169. (in Chinese) 

Sponsors, Associates, and Links

---

• Information Systems and Economics
  
  
• Accounting, Auditing and Finance
  
  
• Industrial Engineering and Innovation Management
  
  
• Tourism Management and Technology Economy
  
  
• Journal of Computational and Financial Econometrics
  
  
• Accounting and Corporate Management
  
  
• Social Security and Administration Management
  
  
• Population, Resources & Environmental Economics
  
  
• Statistics & Quantitative Economics
  
  
• Agricultural & Forestry Economics and Management
  
  
• Social Medicine and Health Management
  
  
• Land Resource Management
  
  
• Information, Library and Archival Science
  
  
• Journal of Human Resource Development
  
  
• Manufacturing and Service Operations Management
  
  
• Operational Research and Cybernetics