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We present a fast and robust calibration method for stochastic volatility models that admit Fourier-analytic transform-based pricing via characteristic functions. The design is structure-preserving: we keep the original pricing transform…
In financial markets, accurately measuring the risk of future fluctuations in asset prices is of paramount importance. Studies such as Carr and Madan have shown that the expected value of the quadratic variation of log prices can be…
In actuarial research, a task of particular interest and importance is to predict the loss cost for individual risks so that informative decisions are made in various insurance operations such as underwriting, ratemaking, and capital…
We combine the one-dimensional Monte Carlo simulation and the semi-analytical one-dimensional heat potential method to design an efficient technique for pricing barrier options on assets with correlated stochastic volatility. Our approach…
A Bonus-Malus System (BMS) in insurance is a premium adjustment mechanism widely used in a posteriori ratemaking process to set the premium for the next contract period based on a policyholder's claim history. The current practice in BMS…
We consider the problem of computing the Credit Value Adjustment ({CVA}) of a European option in presence of the Wrong Way Risk ({WWR}) in a default intensity setting. Namely we model the asset price evolution as solution to a linear…
We consider the path-dependent volatility (PDV) model of Guyon and Lekeufack (2023), where the instantaneous volatility is a linear combination of a weighted sum of past returns and the square root of a weighted sum of past squared returns.…
We introduce a new volatility model for option pricing that combines Markov switching with the Realized GARCH framework. This leads to a novel pricing kernel with a state-dependent variance risk premium and a pricing formula for European…
Guyon and Lekeufack recently proposed a path-dependent volatility model and documented its excellent performance in fitting market data and capturing stylized facts. The instantaneous volatility is modeled as a linear combination of two…
A new modelling approach that directly prescribes dynamics to the term structure of VIX futures is proposed in this paper. The approach is motivated by the tractability enjoyed by models that directly prescribe dynamics to the VIX,…
Insurers are increasingly adopting more demand-based strategies to incorporate the indirect effect of premium changes on their policyholders' willingness to stay. However, since in practice both insurers' renewal premia and customers'…
Exact path simulation of the underlying state variable is of great practical importance in simulating prices of financial derivatives or their sensitivities when there are no analytical solutions for their pricing formulas. However, in…
Running a reliability analysis on engineering problems involving complex numerical models can be computationally very expensive, requiring advanced simulation methods to reduce the overall numerical cost. Gaussian process based active…
Missing data is a common problem in finance and often requires methods to fill in the gaps, or in other words, imputation. In this work, we focused on the imputation of missing implied volatilities for FX options. Prior work has used…
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,…
This paper revisits the fractional cointegrating relationship between ex-ante implied volatility and ex-post realized volatility. We argue that the concept of corridor implied volatility (CIV) should be used instead of the popular…
In February 2018, the VIX index has seen its largest ever increase and has lead to significant losses for some major volatility related products. Despite many efforts, the precise underlying reasons are yet to be discovered. We study the…
We consider weakly coupled LQ optimal control problems and derive estimates on the sensitivity of the optimal value function in dependence of the coupling strength. In order to improve these sensitivity estimates a "coupling adapted" norm…
Wrong-Way Risk (WWR) is an important component in Funding Valuation Adjustment (FVA) modelling. Yet, the standard assumption is independence between market risks and the counterparty defaults and funding costs. This typical industrial…
We present a unified framework for computing CVA sensitivities, hedging the CVA, and assessing CVA risk, using probabilistic machine learning meant as refined regression tools on simulated data, validatable by low-cost companion Monte Carlo…