Related papers: Vanna-Volga Method for Normal Volatilities
Turbulence is a complex, irregular flow phenomenon ubiquitous in natural processes and engineering applications. The Reynolds-averaged Navier-Stokes (RANS) method, owing to its low computational cost, has become the primary approach for…
We present an empirical study examining several claims related to option prices in rough volatility literature using SPX options data. Our results show that rough volatility models with the parameter $H \in (0,1/2)$ are inconsistent with…
We invert the Black-Scholes formula. We consider the cases low strike, large strike, short maturity and large maturity. We give explicitly the first 5 terms of the expansions. A method to compute all the terms by induction is also given. At…
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…
Volatility prediction--an essential concept in financial markets--has recently been addressed using sentiment analysis methods. We investigate the sentiment of annual disclosures of companies in stock markets to forecast volatility. We…
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…
We study in details the skew of stock option smiles, which is induced by the so-called leverage effect on the underlying -- i.e. the correlation between past returns and future square returns. This naturally explains the anomalous…
We consider a generalization of the variance-gamma (generalized asymmetric Laplace) distribution, defined as a normal mean - variance mixture with a gamma mixing distribution. While this model is typically studied in the univariate setting,…
This paper proposes a semiparametric stochastic volatility (SV) model that relaxes the restrictive Gaussian assumption in both the return and volatility error terms, allowing them to follow flexible, nonparametric distributions with…
It is well know that, in the short maturity limit, the implied volatility approaches the integral harmonic mean of the local volatility with respect to log-strike, see [Berestycki et al., Asymptotics and calibration of local volatility…
Extracting implied information, like volatility and/or dividend, from observed option prices is a challenging task when dealing with American options, because of the computational costs needed to solve the corresponding mathematical problem…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
In this paper, we address the question of the optimal Delta and Vega hedging of a book of exotic options when there are execution costs associated with the trading of vanilla options. In a framework where exotic options are priced using a…
Following Boukai (2021) we present the Generalized Gamma (GG) distribution as a possible RND for modeling European options prices under Heston's (1993) stochastic volatility (SV) model. This distribution is seen as especially useful in…
The Voigt regularization is a technique used to model turbulent flows, offering advantages such as sharing steady states with the Navier-Stokes equations and requiring no modification of boundary conditions; however, the parabolic…
Rough Volterra volatility models are a progressive and promising field of research in derivative pricing. Although rough fractional stochastic volatility models already proved to be superior in real market data fitting, techniques used in…
We present a theory of option pricing and hedging, designed to address non-perfect arbitrage, market friction and the presence of `fat' tails. An implied volatility `smile' is predicted. We give precise estimates of the residual risk…
We introduce the Volterra Stein-Stein model with stochastic interest rates, where both volatility and interest rates are driven by correlated Gaussian Volterra processes. This framework unifies various well-known Markovian and non-Markovian…
A novel volume of fluid model (VoF) called explicit volume diffusion (EVD) is developed for the simulation of interfacial flows, including those with turbulence and primary spray atomisation. The EVD model is derived by volume averaging the…
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…