Alòs type decomposition formula for Barndorff-Nielsen and Shephard model

2020/05/15 by Takuji Arai, Arai, Takuji
Economics, Econometrics and Finance · Mathematics · #FOS: Economics and business #Financial Risk and Volatility Modeling #Mathematical Finance (q-fin.MF) #Stochastic processes and financial applications #Stochastic processes and statistical mechanics

paper · pdf · doi:10.48550/arxiv.2005.07393

openalex publication_date 2020/05/15 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

The objective is to provide an Alòs type decomposition formula of call option prices for the Barndorff-Nielsen and Shephard model: an Ornstein-Uhlenbeck type stochastic volatility model driven by a subordinator without drift. Alòs (2012) introduced a decomposition expression for the Heston model by using Ito's formula. In this paper, we extend it to the Barndorff-Nielsen and Shephard model. As far as we know, this is the first result on the Alòs type decomposition formula for models with infinite active jumps.

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