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Abstract and Applied Analysis
Volume 2014, Article ID 407145, 10 pages
Research Article

Turbo Warrants under Hybrid Stochastic and Local Volatility

1Department of Mathematics, Sungkyunkwan University, Suwon-si, Gyeonggi-do 440-746, Republic of Korea
2Department of Mathematical Science, Seoul National University, Seoul 151-747, Republic of Korea
3Department of Mathematics, Yonsei University, Seoul 120-749, Republic of Korea

Received 28 September 2013; Revised 12 December 2013; Accepted 14 December 2013; Published 8 January 2014

Academic Editor: Sergio Polidoro

Copyright © 2014 Min-Ku Lee et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


This paper considers the pricing of turbo warrants under a hybrid stochastic and local volatility model. The model consists of the constant elasticity of variance model incorporated by a fast fluctuating Ornstein-Uhlenbeck process for stochastic volatility. The sensitive structure of the turbo warrant price is revealed by asymptotic analysis and numerical computation based on the observation that the elasticity of variance controls leverage effects and plays an important role in characterizing various phases of volatile markets.