Instruct: Identify the main and secondary category of Arxiv papers based on the titles and abstracts
Query: An Adaptive Method for Valuing an Option on Assets with Uncertainty in
  Volatility   We present an adaptive approach for valuing the European call option on
assets with stochastic volatility. The essential feature of the method is a
reduction of uncertainty in latent volatility due to a Bayesian learning
procedure. Starting from a discrete-time stochastic volatility model, we derive
a recurrence equation for the variance of the innovation term in latent
volatility equation. This equation describes a reduction of uncertainty in
volatility which is crucial for option pricing. To implement the idea of
adaptive control, we use the risk-minimization procedure involving random
volatility with uncertainty. By using stochastic dynamic programming and a
Bayesian approach, we derive a recurrence equation for the risk inherent in
writing the option. This equation allows us to find the fair price of the
European call option. We illustrate numerically that the adaptive procedure
leads to a decrease in option price.

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The categories of this paper are: cs
33
The categories of this paper are: plasm-ph
13
The categories of this paper are: quant-ph
20
The categories of this paper are: acc-phys
8
The categories of this paper are: hep-ex
27
The categories of this paper are: comp-gas
14
The categories of this paper are: math-ph
22
The categories of this paper are: chao-dyn
34
The categories of this paper are: chem-ph
30
The categories of this paper are: q-alg
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The categories of this paper are: hep-ph
7
The categories of this paper are: hep-th
31
The categories of this paper are: ao-sci
3
The categories of this paper are: physics
16
The categories of this paper are: stat
36
The categories of this paper are: cmp-lg