Related papers: Spectral methods for volatility derivatives
This paper studies pricing derivatives in an age-dependent semi-Markov modulated market. We consider a financial market where the asset price dynamics follow a regime switching geometric Brownian motion model in which the coefficients…
The Black-Scholes formula for pricing options on stocks and other securities has been generalized by Merton and Garman to the case when stock volatility is stochastic. The derivation of the price of a security derivative with stochastic…
We derive the price of a spread option based on two assets which follow a bivariate volatility modulated Volterra process dynamics. Such a price dynamics is particularly relevant in energy markets, modelling for example the spot price of…
We present a study of the short-maturity asymptotics for VIX and European option prices in local-stochastic volatility models with compound Poisson jumps. Both out-of-the-money (OTM) and at-the-money (ATM) asymptotics are considered. The…
We propose VISP: Volatility Informed Stochastic Projection, an adaptive regularization method that leverages gradient volatility to guide stochastic noise injection in deep neural networks. Unlike conventional techniques that apply uniform…
This paper studies equity basket options -- i.e., multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks -- and develops a new and innovative approach to ensure consistency between options…
This paper presents a novel approach to stochastic volatility (SV) modeling by utilizing nonparametric techniques that enhance our ability to capture the volatility of financial time series data, with a particular emphasis on the…
In this paper the valuation problem of a European call option in presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the…
There is no exact closed form formula for pricing of European options with discrete cash dividends under the model where the underlying asset price follows a piecewise lognormal process with jumps at dividend ex-dates. This paper presents…
This paper examines the problem of pricing spread options under some models with jumps driven by Compound Poisson Processes and stochastic volatilities in the form of Cox-Ingersoll-Ross(CIR) processes. We derive the characteristic function…
In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and…
This paper revisits the fractional cointegrating relationship between ex-ante implied volatility and ex-post realized volatility. We argue that the concept of corridor implied volatility (CIV) should be used instead of the popular…
In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes…
We propose a tractable extension of the rough Bergomi model, replacing the fractional Brownian motion with a generalised grey Brownian motion, which we show to be reminiscent of models with stochastic volatility of volatility. This…
In this paper, we are presenting a method for estimation of market parameters modeled by jump diffusion process. The method proposed is based on Gibbs sampler, while the market parameters are the drift, the volatility, the jump intensity…
We propose a multi-scale stochastic volatility model in which a fast mean-reverting factor of volatility is built on top of the Heston stochastic volatility model. A singular pertubative expansion is then used to obtain an approximation for…
The volatility of financial instruments is rarely constant, and usually varies over time. This creates a phenomenon called volatility clustering, where large price movements on one day are followed by similarly large movements on successive…
In this paper analytic formulas for electricity derivatives are calculated. To this end, we assume that electricity spot prices follow a 3-regime Markov regime-switching model with independent spikes and drops and periodic transition…
This paper proposes the sample path generation method for the stochastic volatility version of CGMY process. We present the Monte-Carlo method for European and American option pricing with the sample path generation and calibrate model…
In this article we focus on the pricing of exchange options when the dynamic of logprices follows either the well-known variance gamma or the recent variance gamma++ process introduced in Gardini et al [19]. In particular, for the former…