Related papers: A flexible matrix Libor model with smiles
We present small-time implied volatility asymptotics for Realised Variance (RV) and VIX options for a number of (rough) stochastic volatility models via large deviations principle. We provide numerical results along with efficient and…
A Levy-driven Ornstein-Uhlenbeck process is proposed to model the evolution of the risk-free rate and default intensities for the purpose of evaluating option contracts on a credit index. Time evolution in credit markets is assumed to…
This paper presents closed-form analytical formulas for pricing volatility and variance derivatives with nonlinear payoffs under discrete-time observations. The analysis is based on a probabilistic approach assuming that the underlying…
Variants of the $A$-term model of hep-ph/0605035 are considered. They are equally successful, indicating that the model is quite robust once the relation between $A$ and the soft mass is regarded as tunable. Alternatively a flat direction…
The Libor market model is a mainstay term structure model of interest rates for derivatives pricing, especially for Bermudan swaptions, and other exotic Libor callable derivatives. For numerical implementation the pricing of derivatives…
In this paper we develop a Bayesian procedure for estimating multivariate stochastic volatility (MSV) using state space models. A multiplicative model based on inverted Wishart and multivariate singular beta distributions is proposed for…
Existence and uniqueness of solutions to the multi-dimensional mean-field Libor market model (introduced by [7]) is shown. This is used as the basis for a numerical asset-liability management (ALM) model capable of calculating future…
The goal of this paper is to investigate how the marginal and dependence structures of a variety of multivariate L\'evy models affect calibration and pricing. To this aim, we study the approaches of Luciano and Semeraro (2010) and Ballotta…
We develop a stochastic volatility framework for modeling multiple currencies based on CBI-time-changed L\'evy processes. The proposed framework captures the typical risk characteristics of FX markets and is coherent with the symmetries of…
Exponential L\'evy processes can be used to model the evolution of various financial variables such as FX rates, stock prices, etc. Considerable efforts have been devoted to pricing derivatives written on underliers governed by such…
With the reform of interest rate benchmarks, interbank offered rates (IBORs) like LIBOR have been replaced by risk-free rates (RFRs), such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Euro Short-Term Rate (\euro STR)…
We consider an interest rate model with log-normally distributed rates in the terminal measure in discrete time. Such models are used in financial practice as parametric versions of the Markov functional model, or as approximations to the…
We analyse the behaviour of the implied volatility smile for options close to expiry in the exponential L\'evy class of asset price models with jumps. We introduce a new renormalisation of the strike variable with the property that the…
The continuous observation of the financial markets has identified some stylized facts which challenge the conventional assumptions, promoting the born of new approaches. On the one hand, the long-range dependence has been faced replacing…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
A variety of lifted inference algorithms, which exploit model symmetry to reduce computational cost, have been proposed to render inference tractable in probabilistic relational models. Most existing lifted inference algorithms operate only…
The proposed model modifies option pricing formulas for the basic case of log-normal probability distribution providing correspondence to formulated criteria of efficiency and completeness. The model is self-calibrating by historic…
In this paper we propose a novel pricing-hedging framework for volatility derivatives which simultaneously takes into account rough volatility and volatility jumps. Our model directly targets the instantaneous variance of a risky asset and…
In this paper we aim to improve existing empirical exchange rate models by accounting for uncertainty with respect to the underlying structural representation. Within a flexible Bayesian non-linear time series framework, our modeling…
In this paper, two efficient iterative algorithms based on the simpler GMRES method are proposed for solving shifted linear systems. To make full use of the shifted structure, the proposed algorithms utilizing the deflated restarting…