Related papers: Local Volatility Models in Commodity Markets and O…
We analyze the VIX futures market with a focus on the exchange-traded notes written on such contracts, in particular we investigate the VXX notes tracking the short-end part of the futures term structure. Inspired by recent developments in…
We address the inverse problem of local volatility surface calibration from market given option prices. We integrate the ever-increasing flow of option price information into the well-accepted local volatility model of Dupire. This leads to…
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,…
We present a stochastic-local volatility model for derivative contracts on commodity futures able to describe forward-curve and smile dynamics with a fast calibration to liquid market quotes. A parsimonious parametrization is introduced to…
Deep learning for option pricing has emerged as a novel methodology for fast computations with applications in calibration and computation of Greeks. However, many of these approaches do not enforce any no-arbitrage conditions, and the…
This paper analyses the implementation and calibration of the Heston Stochastic Volatility Model. We first explain how characteristic functions can be used to estimate option prices. Then we consider the implementation of the Heston model,…
We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies.…
Local volatility is an important quantity in option pricing, portfolio hedging, and risk management. It is not directly observable from the market; hence calibrations of local volatility models are necessary using observable market data.…
We present an algorithm for the calibration of local volatility from market option prices through deep self-consistent learning, by approximating both market option prices and local volatility using deep neural networks. Our method uses the…
In this paper, we develop a general rough volatility model for commodities that provides an automatic calibration of the initial term structure of the futures prices and an appropriate treatment of the Samuelson effect. After the…
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.…
The local volatility model is a widely used for pricing and hedging financial derivatives. While its main appeal is its capability of reproducing any given surface of observed option prices---it provides a perfect fit---the essential…
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 apply convex regularization techniques to the problem of calibrating the local volatility surface model of Dupire taking into account the practical requirement of discrete grids and noisy data. Such requirements are the consequence of…
Local Volatility (LV) is a powerful tool for market modeling, enabling the generation of arbitrage-free scenarios calibrated to all European options. To implement LV, we need to interpolate and extrapolate option prices. This approach is…
In commodity and energy markets swing options allow the buyer to hedge against futures price fluctuations and to select its preferred delivery strategy within daily or periodic constraints, possibly fixed by observing quoted futures…
We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and…
Pricing composite and quanto contracts requires a joint model of both the underlying asset and the exchange rate. In this contribution, we explore the potential of local-correlation models to address the challenges of calibrating synthetic…
In some options markets (e.g. commodities), options are listed with only a single maturity for each underlying. In others, (e.g. equities, currencies), options are listed with multiple maturities. In this paper, we provide an algorithm for…
We use modifications of the Adams method and very fast and accurate sinh-acceleration method of the Fourier inversion (iFT) (S.Boyarchenko and Levendorski\u{i}, IJTAF 2019, v.22) to evaluate prices of vanilla options; for options of…