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C. Chiarella, B. Kang, G. H. Meyer and A. Ziogas, “The Evaluation of American Option Prices under Stochastic Volatility and Jump-Diffusion Dynamics Using the Method of Lines,” Quantitative Finance Research Centre, University of Technology, Sydney, 2008.

has been cited by the following article:

• TITLE: Joint Characteristic Function of Stock Log-Price and Squared Volatility in the Bates Model and Its Asset Pricing Applications

  AUTHORS: Oleksandr Zhylyevskyy

  KEYWORDS: Bates Model; Stochastic Volatility; Jump-Diffusion; Characteristic Function; Option Pricing

  JOURNAL NAME: Theoretical Economics Letters, Vol.2 No.4, November 1, 2012

  ABSTRACT: The model of Bates specifies a rich, flexible structure of stock dynamics suitable for applications in finance and economics, including valuation of derivative securities. This paper analytically derives a closed-form expression for the joint conditional characteristic function of a stock’s log-price and squared volatility under the model dynamics. The use of the function, based on inverting it, is illustrated on examples of pricing European-, Bermudan-, and American-style options. The discussed approach for European-style derivatives improves on the option formula of Bates. The suggested approach for American-style derivatives, based on a compound-option technique, offers an alternative solution to existing finite-difference methods.