Please use this identifier to cite or link to this item: http://scholarbank.nus.edu.sg/handle/10635/52757
Title: A path integral approach to option pricing with stochastic volatility: Some exact results
Authors: Baaquie, B.E. 
Issue Date: 1997
Source: Baaquie, B.E. (1997). A path integral approach to option pricing with stochastic volatility: Some exact results. Journal de Physique II 7 (12) : 1733-1753. ScholarBank@NUS Repository.
Abstract: The Black-Scholes formula for pricing options on stocks and other securities has been generalized by Merton and Garman to the case when stock volatility is stochastic. The derivation of the price of a security derivative with stochastic volatility is reviewed starting from the first principles of finance. The equation of Merton and Garman is then recast using the path integration technique of theoretical physics. The price of the stock option is shown to be the analogue of the Schrödinger wavefuction of quantum mechanics and the exact Hamiltonian and Lagrangian of the system is obtained. The results of Hull and White are generalized to the case when stock price and volatility have non-zero correlation. Some exact results for pricing stock options for the general correlated case are derived. © Les Éditions de Physique 1997.
Source Title: Journal de Physique II
URI: http://scholarbank.nus.edu.sg/handle/10635/52757
ISSN: 11554312
Appears in Collections:Staff Publications

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