Related papers: An analytic multi-currency model with stochastic v…
We provide a unifying treatment of pathwise moderate deviations for models commonly used in financial applications, and for related integrated functionals. Suitable scaling allows us to transfer these results into small-time, large-time and…
In this article we look at stochastic processes with uncertain parameters, and consider different ways in which information is obtained when carrying out observations. For example we focus on the case of a the random evolution of a traded…
This paper proposes an enhanced approach to modeling and forecasting volatility using high frequency data. Using a forecasting model based on Realized GARCH with multiple time-frequency decomposed realized volatility measures, we study the…
We develop a general term structure framework taking stochastic discontinuities explicitly into account. Stochastic discontinuities are a key feature in interest rate markets, as for example the jumps of the term structures in…
It is well known that traded foreign exchange forwards and cross currency swaps (CCS) cannot be priced applying overnight cash and carry arguments as they imply absence of funding advantage of one currency to the other. This paper proposes…
In this paper, we provide a simple, ``generic'' interpretation of multifractal scaling laws and multiplicative cascade process paradigms in terms of volatility correlations. We show that in this context 1/f power spectra, as observed…
The paper tests the validity of the critique of the fiscal theory of the price level. A stochastic general equilibrium model with continuous time is constructed. An active fiscal policy and a passive monetary policy have been set. Monetary…
Consistently fitting vanilla option surfaces is an important issue when it comes to modelling in finance. Local volatility models introduced by Dupire in 1994 are widely used to price and manage the risks of structured products. However,…
This work is devoted to the study of modeling geophysical and financial time series. A class of volatility models with time-varying parameters is presented to forecast the volatility of time series in a stationary environment. The modeling…
In this paper, we present a comprehensive survey of continuous stochastic volatility models, discussing their historical development and the key stylized facts that have driven the field. Special attention is dedicated to fractional and…
We introduce a flexible and tractable infinite-dimensional stochastic volatility model. More specifically, we consider a Hilbert space valued Ornstein-Uhlenbeck-type process, whose instantaneous covariance is given by a pure-jump stochastic…
We extend upon the saddle-point equation presented in [1] to derive large-time model-implied volatility smiles, providing its theoretical foundation and studying its applications in classical models. As long as characteristic function…
We present an adaptive approach for valuing the European call option on assets with stochastic volatility. The essential feature of the method is a reduction of uncertainty in latent volatility due to a Bayesian learning procedure. Starting…
In this paper, we relax the power parameter of instantaneous variance and develop a new stochastic volatility plus jumps model that generalize the Heston model and 3/2 model as special cases. This model has two distinctive features. First,…
Based on the existing literature, this article presents the different ways of choosing the parameters of stochastic volatility models in general, in the context of pricing financial derivative contracts. This includes the use of stochastic…
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…
We introduce a simple stochastic volatility model, whose novelty consists in taking into account hitting times of the asset price, and study the optimal stopping problem corresponding to a put option whose time horizon (after the asset…
In this work, we aim to gain a better understanding of the volatility smile observed in options markets through microsimulation (MS). We adopt two types of active traders in our MS model: speculators and arbitrageurs, and call and put…
This paper develops a Bayesian procedure for estimation and forecasting of the volatility of multivariate time series. The foundation of this work is the matrix-variate dynamic linear model, for the volatility of which we adopt a…
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…