Stochastic volatility with an Ornstein-Uhlenbeck process: An extension

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Abstract
In this paper, we reexamine and extend the stochastic volatility model of Stein and Stein (1991) where volatility follows a mean-reversion Ornstein-Uhlenbeck process. Using Fourier inversion techniques we are able to allow for correlation between instan-taneous volatilities and the underlying stock returns. A closed-form pricing Solution for European options is derived and some numerical examples are given.
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