Re: Constant Elasticity of Variance Model for Option Pricing

Posted by newbie73 on
URL: http://quantlib.414.s1.nabble.com/Constant-Elasticity-of-Variance-Model-for-Option-Pricing-tp1411p1413.html

Standard Black Scholes process for Stock Price S:
dS = (m * S * dt) + (vol * S * dz), where:
m = drift
S = stock price
dt = delta time
vol = std. dev of S
dz = random motion

CeV Black Scholes process for Stock Price S:

a = vol * S(1-rho), where:
rho = coefficient of elasticity

dS = (m * S * dt) + (vol * [S^a] * dz)

if a == 1, dS becomes a standard black scholes process

Given the above, is it possible to estimate this using existing classes/functions?  

newbie73 wrote

Does QuantLib have a CEV model for options pricing?  The example European and American option pricers shown in the Python installation don't seem to make use of a CeV adjustment.

How could I approximate this if it is not currently available in the QL library?

Thanks,

- Luis