@inproceedings{c0efe55c81e444889ba44012e79b82f2,
title = "European Option Pricing with Stochastic Volatility Models Under Parameter Uncertainty",
abstract = "We consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and formalise the problem as a control problem where the control acts on the parameters to maximise/minimise the option value. Through a dual representation with backward stochastic differential equations, we obtain explicit equations for Heston{\textquoteright}s model and investigate several numerical solutions thereof. In an empirical study, we apply our results to market data from the S&P 500 index where the model is estimated to historical asset prices. We find that the conservative model-prices cover 98% of the considered market-prices for a set of European call options.",
keywords = "Model uncertainty, Option pricing, Stochastic volatility",
author = "Cohen, {Samuel N.} and Martin Tegn{\'e}r",
year = "2019",
doi = "10.1007/978-3-030-22285-7_5",
language = "English",
isbn = "9783030222840",
series = "Springer Proceedings in Mathematics and Statistics",
publisher = "Springer",
pages = "123--167",
editor = "Cohen, {Samuel N.} and Istv{\'a}n Gy{\"o}ngy and {dos Reis}, Gon?alo and David Siska and Lukasz Szpruch",
booktitle = "Frontiers in Stochastic Analysis - BSDEs, SPDEs and their Applications",
note = "International Workshop on BSDEs, SPDEs and their Applications, BSDE-SPDE 2017 ; Conference date: 03-07-2017 Through 07-07-2017",
}