Option Price Decomposition in Spot-Dependent Volatility Models and Some Applications

Call option <svg height="12.7178pt" id="M105" style="vertical-align:-3.42947pt" version="1.1" viewbox="-0.0498162 -9.28833 44.3696 12.7178" width="44.3696pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M558 587C558 666 497 712 432 712C379 712 330 691 284 650C212 586 178 508 148 348L71 -65C49 -185 35 -229 23 -235L27 -261C49 -259 101 -251 124 -224C131 -216 138 -178 159 -24C171 66 197 200 227 356C264 550 295 668 393 668C443 668 479 632 479 575C479 516 446 458 383 418C361 404 344 398 318 397L296 350C395 338 460 281 460 192C460 110 411 40 300 40C258 40 215 55 192 69L181 51C191 18 222 -16 266 -16C308 -16 351 1 397 26C471 67 545 142 545 221C545 315 486 365 401 395C469 437 558 498 558 587Z" id="g113-224"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="581" vert-adv-y="581" xpluscharwidth="7.553"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,11.186,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="587" vert-adv-y="587" xpluscharwidth="18.817"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,22.449,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z" id="g113-49"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="28.689"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,28.689,0)"><path d="M113 -12C146 -12 170 11 170 46C170 78 146 103 114 103S58 78 58 46C58 11 82 -12 113 -12Z" id="g113-47"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="228" vert-adv-y="228" xpluscharwidth="31.653"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,31.653,0)"><path d="M412 140C382 77 369 73 315 73H129L270 222C362 320 402 379 402 466C402 571 322 635 234 635C177 635 130 609 99 576L42 495L64 475C90 514 133 568 201 568C274 568 318 519 318 435C318 349 255 267 193 193C144 135 87 78 32 23V0H405C417 45 427 89 440 131L412 140Z" id="g113-51"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="37.893"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,37.893,0)"><path d="M153 550H386L412 615L406 623H120L82 318C104 327 142 338 184 338C294 338 347 275 347 187C347 112 305 39 221 39C160 39 119 71 97 89C88 97 80 96 71 90C59 80 50 67 49 57C48 45 52 36 66 23C80 9 123 -12 169 -12C221 -11 288 15 342 59C403 109 431 165 431 225C431 308 366 395 238 395C212 395 165 379 127 364L153 550Z" id="g113-54"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="44.133"></glyph.data></g></svg>, <svg height="11.927pt" id="M106" style="vertical-align:-3.291101pt" version="1.1" viewbox="-0.0498162 -8.6359 44.8533 11.927" width="44.8533pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M449 634C442 637 425 643 405 650C376 660 341 666 307 666C181 666 98 590 98 485C98 400 170 343 215 310L246 288C307 243 343 204 343 147C343 67 291 18 219 18C104 18 61 124 51 202L23 199C28 124 27 71 27 47C47 22 122 -16 204 -16C324 -16 428 60 428 174C428 256 379 309 307 360L276 382C223 419 179 455 179 516C179 576 221 632 293 632C379 632 410 564 418 487L448 490C446 536 446 592 449 634Z" id="g113-84"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="472" vert-adv-y="472" xpluscharwidth="6.136"></glyph.data></g><g transform="matrix(.0091,0,0,-0.0091,6.071,3.132)"><path d="M245 635C92 635 37 457 37 312C37 149 91 -12 244 -12C395 -12 449 166 449 312C449 469 395 635 245 635ZM243 598C332 598 358 454 358 312C358 173 334 26 245 26C158 26 128 174 128 313S152 598 243 598Z" id="g50-49"></path><glyph.data ascent="3443" descent="-2856" horiz-adv-x="487" vert-adv-y="487" xpluscharwidth="10.50268539"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,14.649,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="587" vert-adv-y="587" xpluscharwidth="22.28"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,25.912,0)"><path d="M384 0V27C293 34 287 42 287 114V635C232 613 172 594 109 583V559L157 557C201 555 205 550 205 499V114C205 42 199 34 109 27V0H384Z" id="g113-50"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="32.152"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,32.152,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z" id="g113-49"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="38.392"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,38.392,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z" id="g113-49"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="44.632000000000005"></glyph.data></g></svg>, <svg height="8.8423pt" id="M107" style="vertical-align:-0.2064009pt" version="1.1" viewbox="-0.0498162 -8.6359 43.6649 8.8423" width="43.6649pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M743 650H503L496 622L527 618C563 613 564 603 532 573C449 495 371 431 323 392C301 374 272 355 246 346L280 522C297 609 300 614 379 622L385 650H135L129 622C209 614 215 609 198 522L124 133C106 39 99 35 23 28L17 0H271L277 28C193 35 192 39 208 133L239 316C264 328 280 325 303 288C368 183 435 90 502 0H652L659 28C602 34 584 43 543 94C495 154 403 283 347 369L574 554C634 603 659 612 735 624L743 650Z" id="g113-76"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="755" vert-adv-y="755" xpluscharwidth="9.815"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,13.449,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="587" vert-adv-y="587" xpluscharwidth="21.08"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,24.712,0)"><path d="M384 0V27C293 34 287 42 287 114V635C232 613 172 594 109 583V559L157 557C201 555 205 550 205 499V114C205 42 199 34 109 27V0H384Z" id="g113-50"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="30.951999999999998"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,30.952,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z" id="g113-49"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="37.192"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,37.192,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z" id="g113-49"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="43.432"></glyph.data></g></svg>, <svg height="8.85534pt" id="M108" style="vertical-align:-0.4673595pt" version="1.1" viewbox="-0.0498162 -8.38798 44.7872 8.85534" width="44.7872pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M548 455L523 469C505 448 490 439 461 439C416 439 374 447 316 447C144 447 23 310 23 161C23 47 89 -12 179 -12C312 -12 429 106 429 244C429 303 419 344 368 386L371 388C404 383 440 378 474 378C507 378 530 411 548 455ZM350 274C350 191 308 25 198 25C144 25 108 75 108 157C108 264 170 395 276 395C296 395 320 384 333 360C347 334 350 316 350 274Z" id="g113-240"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="565" vert-adv-y="565" xpluscharwidth="7.345"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,10.979,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="587" vert-adv-y="587" xpluscharwidth="18.61"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,22.242,0)"><path d="M412 140C382 77 369 73 315 73H129L270 222C362 320 402 379 402 466C402 571 322 635 234 635C177 635 130 609 99 576L42 495L64 475C90 514 133 568 201 568C274 568 318 519 318 435C318 349 255 267 193 193C144 135 87 78 32 23V0H405C417 45 427 89 440 131L412 140Z" id="g113-51"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="28.482"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,28.482,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z" id="g113-49"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="34.722"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,34.769,0)"><path d="M594 629L561 652L159 -9L190 -32L594 629ZM194 635C92 635 49 534 49 453C49 374 92 272 193 272C295 272 338 374 338 454S295 635 194 635ZM193 605C257 605 265 504 265 453C265 405 257 302 194 302C133 302 122 403 122 454S133 605 193 605ZM567 351C465 351 421 250 421 169C421 90 465 -12 566 -12S710 90 710 170S667 351 567 351ZM566 322C628 322 637 221 637 169C637 121 628 18 567 18S494 119 494 170C494 223 506 322 566 322Z" id="g121-35"></path><glyph.data ascent="989" descent="-360" horiz-adv-x="756" vert-adv-y="756" xpluscharwidth="44.596999999999994"></glyph.data></g></svg>, and <svg height="8.85534pt" id="M109" style="vertical-align:-0.4673595pt" version="1.1" viewbox="-0.0498162 -8.38798 36.6578 8.85534" width="36.6578pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M393 379C402 394 400 411 393 422C384 437 365 448 348 448C301 448 237 372 186 285H182L193 335C210 408 205 448 178 448C150 448 80 402 29 344L45 321C80 355 114 373 122 373C128 373 130 365 124 330C106 228 76 98 50 -5L57 -12C82 -5 112 3 132 6L172 203C196 256 234 304 254 329C275 355 293 367 306 367C318 367 330 360 342 348C347 343 355 343 365 350S386 367 393 379Z" id="g113-115"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="422" vert-adv-y="422" xpluscharwidth="5.486"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,9.12,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="587" vert-adv-y="587" xpluscharwidth="16.750999999999998"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,20.383,0)"><path d="M384 0V27C293 34 287 42 287 114V635C232 613 172 594 109 583V559L157 557C201 555 205 550 205 499V114C205 42 199 34 109 27V0H384Z" id="g113-50"></path><glyph.data ascent="3473" descent="-2876" horiz-adv-x="480" vert-adv-y="480" xpluscharwidth="26.622999999999998"></glyph.data></g><g transform="matrix(.013,0,0,-0.013,26.623,0)"><path d="M594 629L561 652L159 -9L190 -32L594 629ZM194 635C92 635 49 534 49 453C49 374 92 272 193 272C295 272 338 374 338 454S295 635 194 635ZM193 605C257 605 265 504 265 453C265 405 257 302 194 302C133 302 122 403 122 454S133 605 193 605ZM567 351C465 351 421 250 421 169C421 90 465 -12 566 -12S710 90 710 170S667 351 567 351ZM566 322C628 322 637 221 637 169C637 121 628 18 567 18S494 119 494 170C494 223 506 322 566 322Z" id="g121-35"></path><glyph.data ascent="989" descent="-360" horiz-adv-x="756" vert-adv-y="756" xpluscharwidth="36.451"></glyph.data></g></svg>.

International Journal of Stochastic Analysis

tab1

Table 1

Table 1: Option Price Decomposition in Spot-Dependent Volatility Models and Some Applications 