Related papers: Arbitrage-free SVI volatility surfaces
Following closely the construction of the Schrodinger bridge, we build a new class of Stochastic Volatility Models exactly calibrated to market instruments such as for example Vanillas, options on realized variance or VIX options. These…
The problem of covariate-shift generalization has attracted intensive research attention. Previous stable learning algorithms employ sample reweighting schemes to decorrelate the covariates when there is no explicit domain information about…
This paper focuses on optimization problems constrained by Parametric Variational Inequalities (PVI) defined on a moving set. Unlike most existing works on mathematical programs with equilibrium constraints, the equilibrium constraints have…
Stochastic variational inference (SVI) employs stochastic optimization to scale up Bayesian computation to massive data. Since SVI is at its core a stochastic gradient-based algorithm, horizontal parallelism can be harnessed to allow larger…
We present a Hawkes modeling of the volatility surface's high-frequency dynamics and show how the Hawkes kernel coefficients govern the surface's skew and convexity. We provide simple sufficient conditions on the coefficients to ensure…
For quantitative trading risk management purposes, we present a novel idea: the realized local volatility surface. Concisely, it stands for the conditional expected volatility when sudden market behaviors of the underlying occur. One is…
Stochastic variational inequalities (SVI) model a large class of equilibrium problems subject to data uncertainty, and are closely related to stochastic optimization problems. The SVI solution is usually estimated by a solution to a sample…
We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…
The purpose of this work is to explore the role that random arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a…
Stochastic volatility (SV) and local stochastic volatility (LSV) processes can be used to model the evolution of various financial variables such as FX rates, stock prices, and so on. Considerable efforts have been devoted to pricing…
Stochastic volatility (SV) models mimic many of the stylized facts attributed to time series of asset returns, while maintaining conceptual simplicity. The commonly made assumption of conditionally normally distributed or…
A robust numerical methodology to predict equilibrium interfaces over arbitrary solid surfaces is developed. The kernel of the proposed method is the distance regularized level set equations (DRLSE) with techniques to incorporate the…
We investigate surjective parametrizations of rational algebraic varieties, in the vein of recent work by Jorge Caravantes, J. Rafael Sendra, David Sevilla, and Carlos Villarino. In particular, we show how to construct plenty of examples of…
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…
We numerically investigate the possibility of defining stabilization-free Virtual Element (VEM) discretizations of advection-diffusion problems in the advection-dominated regime. To this end, we consider a SUPG stabilized formulation of the…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
Calibration of stochastic local volatility (SLV) models to their underlying local volatility model is often performed by numerically solving a two-dimensional non-linear forward Kolmogorov equation. We propose a novel finite volume (FV)…
We propose a generic calibration framework to both vanilla and no-touch options for a large class of continuous semi-martingale models. The method builds upon the forward partial integro-differential equation (PIDE) derived in Hambly et al.…
We present the construction and application of a first order stabilization-free virtual element method to problems in plane elasticity. Well-posedness and error estimates of the discrete problem are established. The method is assessed on a…