@techreport{f3dafb1022964e7d89eaf8593bd5c16a,

title = "Stochastic Volatility and Pricing Bias in the Swedish OMX-Index Call Option Market",

abstract = "This paper investigates the pricing bias in the Swedish OMX-Index Option market and how a stochastic volatility affects European call option prices. The market is purely European and without dividends for the period studied. A CIR square-root process for the volatility is estimated with non-linear least square minimization, and stochastic volatility option prices are calculated through Fourier-Inversion. These call option prices are compared to Black-Scholes prices as well as observed market prices, and a well-defined bias structure between Stochastic Volatility prices and Black-Scholes prices is observed. With a dynamic hedging scheme, I demonstrate larger (ex ante) profits, excluding transaction costs, for traders using the stochastic volatility model rather than the Black-Scholes model",

keywords = "derivatives pricing, stochastic volatility, Fourie",

author = "Hans Bystr{\"o}m",

year = "2000",

language = "English",

series = "Working Papers, Department of Economics, Lund University",

publisher = "Department of Economics, Lund University",

number = "16",

type = "WorkingPaper",

institution = "Department of Economics, Lund University",

}