Related papers: Local Volatility Pricing Models for Long-dated FX …
This paper expands on stochastic volatility models by proposing a data-driven method to select the macroeconomic events most likely to impact volatility. The paper identifies and quantifies the effects of macroeconomic events across…
This paper presents static and dynamic versions of univariate, multivariate, and multilevel functional time-series methods to forecast implied volatility surfaces in foreign exchange markets. We find that dynamic functional principal…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
Earlier we proposed the stochastic point process model, which reproduces a variety of self-affine time series exhibiting power spectral density S(f) scaling as power of the frequency f and derived a stochastic differential equation with the…
In this paper we consider a fractional stochastic volatility model, that is a model in which the volatility may exhibit a long-range dependent or a rough/antipersistent behavior. We propose a dynamic sequential Monte Carlo methodology that…
This paper aims at solving FX market volatility modeling problem and finding the most becoming approach to this task. Validity of two competing approaches, classical econometric generalized conditional heteroscedasticity and mathematical…
In the over-the-counter market in derivatives, we sometimes see large numbers of traders taking the same position and risk. When there is this kind of concentration in the market, the position impacts the pricings of all other derivatives…
Based on empirical market data, a stochastic volatility model is proposed with volatility driven by fractional noise. The model is used to obtain a risk-neutrality option pricing formula and an option pricing equation.
We develop a non-parametric, semimartingale optimal transport, calibration methodology for local volatility models with stochastic interest rate. The method finds a fully calibrated model which is the closest, in a way that can be defined…
We consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and…
We propose a novel and generic calibration technique for four-factor foreign-exchange hybrid local-stochastic volatility models with stochastic short rates. We build upon the particle method introduced by Guyon and Labord\`ere [Nonlinear…
Managing exotic derivatives requires accurate mark-to-market pricing and stable Greeks for reliable hedging. The Local Volatility (LV) model distinguishes itself from other pricing models by its ability to match observable market prices…
The Heston stochastic volatility model is arguably, the most popular stochastic volatility model used to price and risk manage exotic derivatives. In spite of this, it is not necessarily easy to calibrate to the market and obtain stable…
In this paper we present a new method to compute the first-order approximation of the price of derivatives on futures in the context of multiscale stochastic volatility of Fouque \textit{et al.} (2011, CUP). It provides an alternative…
The usage of a spot volatility estimate based on a volatility decomposition in a time-changed price-model according to the trading times is investigated. In this model clock-time volatility splits up into the product of tick-time volatility…
In this paper, a pricing formula for volatility swaps is delivered when the underlying asset follows the stochastic volatility model with jumps and stochastic intensity. By using Feynman-Kac theorem, a partial integral differential equation…
Using tools from spectral analysis, singular and regular perturbation theory, we develop a systematic method for analytically computing the approximate price of a derivative-asset. The payoff of the derivative-asset may be path-dependent.…
There are many studies on development of models for analyzing some derivatives such as credit default swaps .
We present a multivariate stochastic volatility model with leverage, which is flexible enough to recapture the individual dynamics as well as the interdependencies between several assets while still being highly analytically tractable.…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…