Related papers: Option Pricing in Multivariate Stochastic Volatili…
In this paper, we introduce and analyze the fractional Barndorff-Nielsen and Shephard (BN-S) stochastic volatility model. The proposed model is based upon two desirable properties of the long-term variance process suggested by the empirical…
We consider the Fourier-Laplace transforms of a broad class of polynomial Ornstein-Uhlenbeck (OU) volatility models, including the well-known Stein-Stein, Sch\"obel-Zhu, one-factor Bergomi, and the recently introduced Quintic OU models…
This study provides a consistent and efficient pricing method for both Standard & Poor's 500 Index (SPX) options and the Chicago Board Options Exchange's Volatility Index (VIX) options under a multiscale stochastic volatility model. To…
Local volatility is a versatile option pricing model due to its state dependent diffusion coefficient. Calibration is, however, non-trivial as it involves both proposing a hypothesis model of the latent function and a method for fitting it…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
We consider discrete time models for asset prices with a stationary volatility process. We aim at estimating the multivariate density of this process at a set of consecutive time instants. A Fourier type deconvolution kernel density…
There is vast empirical evidence that given a set of assumptions on the real-world dynamics of an asset, the European options on this asset are not efficiently priced in options markets, giving rise to arbitrage opportunities. We study…
In financial markets, low prices are generally associated with high volatilities and vice-versa, this well known stylized fact usually being referred to as leverage effect. We propose a local volatility model, given by a stochastic…
We present an alternative formula to price European options through cosine series expansions, under models with a known characteristic function such as the Heston stochastic volatility model. It is more robust across strikes and as fast as…
We provide a nonparametric method for the computation of instantaneous multivariate volatility for continuous semi-martingales, which is based on Fourier analysis. The co-volatility is reconstructed as a stochastic function of time by…
Multivariate stochastic volatility models with skew distributions are proposed. Exploiting Cholesky stochastic volatility modeling, univariate stochastic volatility processes with leverage effect and generalized hyperbolic skew…
Recently Carr and Wu (2004, 2005) and also Huang and Wu (2004) show that most stochastic processes used in traditional option pricing models can be cast as special cases of time-changed L\'evy processes. In particular these are models which…
We introduce a new tool for predicting the evolution of an option for the cases where at some specific time, there is a high-degree of uncertainty for identifying its price. We work over the special case where we can predict the evolution…
Options are financial instruments that depend on the underlying stock. We explain their non-Gaussian fluctuations using the nonextensive thermodynamics parameter $q$. A generalized form of the Black-Scholes (B-S) partial differential…
We consider a class of stochastic path-dependent volatility models where the stochastic volatility, whose square follows the Cox-Ingersoll-Ross model, is multiplied by a (leverage) function of the spot price, its running maximum, and time.…
This paper is concerned with nonlinear filtering of the coefficients in asset price models with stochastic volatility. More specifically, we assume that the asset price process $ S=(S_{t})_{t\geq0} $ is given by \[…
We consider two kinds of stochastic volatility models. Both kinds of models contain a stationary volatility process, the density of which, at a fixed instant in time, we aim to estimate. We discuss discrete time models where for instance a…
We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies.…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
Volatility clustering, long-range dependence, and non-Gaussian scaling are stylized facts of financial assets dynamics. They are ignored in the Black & Scholes framework, but have a relevant impact on the pricing of options written on…