Estimation of call prices for some stochastic volatility models

Abstract

Recently there has been a growing interest in using stochastic volatility models in option pricing. A proposed option pricing valuation method is to use characteristic function. In this paper, we present a theory to obtain closed-form expressions of conditional characteristic functions for option pricing for several stochastic volatility models, based on partial differentiation equation. We also compare the option prices from our presented method and a recursive method introduced by Heston and Nandi [8]. Our method significantly reduces the computation time by avoiding the recursive process.