Related papers: Incorporating a Volatility Smile into the Markov-F…
One of the risks derived from selling long term policies that any insurance company has, arises from interest rates. In this paper we consider a general class of stochastic volatility models written in forward variance form. We also deal…
Classical (It\^o diffusions) stochastic volatility models are not able to capture the steepness of small-maturity implied volatility smiles. Jumps, in particular exponential L\'evy and affine models, which exhibit small-maturity exploding…
We consider the problem of quantifying uncertainty over expected cumulative rewards in model-based reinforcement learning. In particular, we focus on characterizing the variance over values induced by a distribution over Markov decision…
We introduce a class of randomly time-changed fast mean-reverting stochastic volatility models and, using spectral theory and singular perturbation techniques, we derive an approximation for the prices of European options in this setting.…
Diffusion Probabilistic Model (DDPM) for generating one-day-ahead arbitrage-free implied volatility surfaces. To capture the path-dependent nature of volatility dynamics, we condition our model on a set of market variables, including…
We discuss modelling of SPX and DAX index option prices using the Shifted Log-Normal (SLN) model, (also known as Displaced Diffusion), and the SABR model. We found out that for SPX options, an example of strongly skewed option prices, SLN…
Understanding the stochastic behavior of currency exchange rates is critical for assessing financial stability and anticipating market transitions. In this study, we investigate the empirical dynamics of the USD exchange rate in three…
It is known that the implied volatility skew of FX options demonstrates a stochastic behavior which is called stochastic skew. In this paper we create stochastic skew by assuming the spot/instantaneous variance correlation to be stochastic.…
According to the volatility feedback effect, an unexpected increase in squared volatility leads to an immediate decline in the price-dividend ratio. In this paper, we consider the properties of stock price dynamics and option valuations…
We study specific nonlinear transformations of the Black-Scholes implied volatility to show remarkable properties of the volatility surface. Model-free bounds on the implied volatility skew are given. Pricing formulas for the European…
We consider stochastic volatility dynamics driven by a general H\"older continuous Volterra-type noise and with unbounded drift. For these so-called SVV-models, we consider the explicit computation of quadratic hedging strategies. While the…
Recent empirical studies suggest that the volatilities associated with financial time series exhibit short-range correlations. This entails that the volatility process is very rough and its autocorrelation exhibits sharp decay at the…
This project attempts to address the problem of asset pricing in a financial market, where the interest rates and volatilities exhibit regime switching. This is an extension of the Black-Scholes model. Studies of Markov-modulated regime…
In a recent article the authors obtained a formula which relates explicitly the tail of risk neutral returns with the wing behavior of the Black Scholes implied volatility smile. In situations where precise tail asymptotics are unknown but…
Various models of solar subsurface stratification are tested in the global EULAG-MHD solver to simulate diverse regimes of near-surface convective transport. Sub- and superadiabacity are altered at the surface of the model ($ r >…
Recent developments in financial time series focus on modeling volatility across multiple assets or indices in a multivariate framework, accounting for potential interactions such as spillover effects. Furthermore, the increasing…
The problem related to predicting dynamic volatility in financial market plays a crucial role in many contexts. We build a new generalized Barndorff-Nielsen and Shephard (BN-S) model suitable for uncertain environment with fuzziness and…
This investigation establishes a formal equivalence between the generalized Black-Scholes equation under a Quadratic Normal Volatility (QNV) specification and the stationary Schr\"odinger equation for a hyperbolic P\"oschl-Teller potential.…
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 analyze the problem of the analytical characterization of the probability distribution of financial returns in the exponential Ornstein-Uhlenbeck model with stochastic volatility. In this model the prices are driven by a Geometric…