Exact Solutions for a GBM-type Stochastic Volatility Model having a Stationary Distribution

Abstract

We find various exact solutions for a new stochastic volatility (SV) model: the transition probability density, European-style option values, and (when it exists) the martingale defect. This may represent the first example of an SV model combining exact solutions, GBM-type volatility noise, and a stationary volatility density.

42 pages, 5 figures, one typo (eqn (66)) corrected