Author(s)

Raj Jagannathan

Department of Management Sciences, Tippie College of Business, The University of Iowa, Iowa City, IA, USA.

We consider a risk-neutral stock-price model where the volatility and the return processes are assumed to be dependent. The market is complete and arbitrage-free. Using a linear regression approach, explicit functions of risk-neutral density functions of stock return functions are obtained and closed form solutions of the corresponding Black-Scholes-type option pricing results are derived. Implied volatility skewness properties are illustrated.

Option Pricing, Black-Scholes Model, Heston’s Model, Risk-Neutral Density Functions, Linear Regression Approach, Implied Volatility Functions, Ito Formula

Jagannathan, R. (2016) A Linear Regression Approach for Determining Explicit Expressions for Option Prices for Equity Option Pricing Models with Dependent Volatility and Return Processes. Journal of Mathematical Finance, 6, 303-323. doi: 10.4236/jmf.2016.62026.