Turbo Warrants under Hybrid Stochastic and Local Volatility

Abstract EN

This paper considers the pricing of turbo warrants under a hybrid stochastic and local volatility model.

The modelconsists of the constant elasticity of variance model incorporated by a fast fluctuating Ornstein-Uhlenbeck processfor stochastic volatility.

The sensitive structure of the turbo warrant price is revealed by asymptotic analysis andnumerical computation based on the observation that the elasticity of variance controls leverage effects and plays animportant role in characterizing various phases of volatile markets.