Using SV Model to Price Option and Measure its Risk

In this paper, the return process of the underlying asset is firstly been modelled by using SV（Stochastic Variance） Model, then methods of option pricing and its risk measurement are given, confidential intervals of option price and its risk measurement can also be obtained. At the same time, some comparatively studies between the SV Model and ARCH Model are made, self-adapt filter is used to model and estimate parameters. In the end of this paper, a simulation example shows the power of the SV Model, and a true data computation illustrates how to use SV Model to price option and measure its risk.