Related papers: Vanna-Volga Method for Normal Volatilities
It is a market practice to express market-implied volatilities in some parametric form. The most popular parametrizations are based on or inspired by an underlying stochastic model, like the Heston model (SVI method) or the SABR model (SABR…
Variational Bayes (VB) is a popular estimation method for Bayesian inference. However, most existing VB algorithms are restricted to cases where the likelihood is tractable, which precludes their use in many important situations. Tran et…
This study investigates the short-term asymptotic behavior of the implied volatility surface (IVS), with a particular focus on the at-the-money (ATM) skew and curvature, which are key determinants of the IVS shape and whose are widely…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
This paper is devoted to the application of B-splines to volatility modeling, specifically the calibration of the leverage function in stochastic local volatility models and the parameterization of an arbitrage-free implied volatility…
The Navier-Stokes-Voigt (NSV) model of viscoelastic incompressible fluid has been recently proposed as a regularization of the 3D Navier-Stokes equations for the purpose of direct numerical simulations. In this work we investigate its…
A modification of the Frenkel-Kontorova model is presented in which particles are allowed to move in the vertical direction. This model is used to study the formation of islands for a monolayer of 1D interfaces and the corresponding…
Valuation adjustments, collectively named XVA, play an important role in modern derivatives pricing to take into account additional price components such as counterparty and funding risk premia. They are an exotic price component carrying a…
We explore a link between stochastic volatility (SV) and path-dependent volatility (PDV) models. Using assumed density filtering, we map a given SV model into a corresponding PDV representation. The resulting specification is lightweight,…
We develop closed-form expansions for the implied volatility of VIX options within the class of forward variance models. Our approach builds on weak-approximation techniques for VIX option prices and yields explicit implied volatility…
In an era when derivatives is getting popular, risk management has gradually become the core content of modern finance. In order to study how to accurately estimate the volatility of the S&P 500 index, after introducing the theoretical…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
Effective verification and validation techniques for modern scientific machine learning workflows are challenging to devise. Statistical methods are abundant and easily deployed, but often rely on speculative assumptions about the data and…
One of the major issues studied in finance that has always intrigued, both scholars and practitioners, and to which no unified theory has yet been discovered, is the reason why prices move over time. Since there are several well-known…
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…
We present a path integral method to derive closed-form solutions for option prices in a stochastic volatility model. The method is explained in detail for the pricing of a plain vanilla option. The flexibility of our approach is…
In an efficient stock market, the returns and their time-dependent volatility are often jointly modeled by stochastic volatility models (SVMs). Over the last few decades several SVMs have been proposed to adequately capture the defining…
A new approach for simulating flows over complex geometries is developed by introducing an accurate virtual interpolation point scheme as well as a virtual local stencil approach. The present method is based on the concept of point…
Extracting the risk neutral density (RND) function from option prices is well defined in principle, but is very sensitive to errors in practice. For risk management, knowledge of the entire RND provides more information for Value-at-Risk…
We analyse the behaviour of the implied volatility smile for options close to expiry in the exponential L\'evy class of asset price models with jumps. We introduce a new renormalisation of the strike variable with the property that the…