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Discrete Dynamics in Nature and Society
Volume 2017, Article ID 9673630, 7 pages
Research Article

Pricing Collar Options with Stochastic Volatility

School of Business Administration, South China University of Technology, Guangzhou 510640, China

Correspondence should be addressed to Jianhui Yang; nc.ude.tucs@gnayhjmb

Received 12 October 2016; Accepted 20 March 2017; Published 14 May 2017

Academic Editor: Paolo Renna

Copyright © 2017 Pengshi Li and Jianhui Yang. 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 studies collar options in a stochastic volatility economy. The underlying asset price is assumed to follow a continuous geometric Brownian motion with stochastic volatility driven by a mean-reverting process. The method of asymptotic analysis is employed to solve the PDE in the stochastic volatility model. An analytical approximation formula for the price of the collar option is derived. A numerical experiment is presented to demonstrate the results.