Abstract
This paper develops a Bayesian model for pricing derivative securities with prior information on volatility. Prior information is given in terms of expected values of levels and rates of precision: the inverse of variance. We provide several approximate formulas, for valuing European call options, on the basis of asymptotic and polynomial approximations of Bessel functions.
| Original language | English |
|---|---|
| Pages (from-to) | 1-12 |
| Number of pages | 12 |
| Journal | International Journal of Theoretical and Applied Finance |
| Volume | 8 |
| Issue number | 1 |
| DOIs | |
| State | Published - 2005 |
| Externally published | Yes |
Keywords
- Bayesian Inference
- Numerical methods
- Option pricing
- Stochastic volatility