Under the risk neutral measure Q, the stochastic process of the logarithm of the asset price x

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Under the risk neutral measure Q, the stochastic process of the logarithm of the asset price xt = ln St and its instantaneous volatility σt are assumed to be governed by 

(r - 2/17) dt + do= k(0 - 0) dt + nd Zo, dxt = dt + ot dZx

where dZx dZσ = ρdt. All model parameters are taken to be constant. The price function of a European call option with strike price X and maturity date T takes the form 

where Fj c(St, ot, t; T) = S F e-r(T-1) X Fo, F-+Re()do. fj (0) e-ix JO fo(0) Elexp(ixT)], fi(0) = E[exp(-r

Solve for f0(∅) and f1(∅) (Schöbel and Zhu, 1999).

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