Related papers: Vanna-Volga Method for Normal Volatilities
As the use of complex machine learning models continues to grow, so does the need for reliable explainability methods. One of the most popular methods for model explainability is based on Shapley values. There are two most commonly used…
Following closely the construction of the Schrodinger bridge, we build a new class of Stochastic Volatility Models exactly calibrated to market instruments such as for example Vanillas, options on realized variance or VIX options. These…
We introduce a new approach for generating sequences of implied volatility (IV) surfaces across multiple assets that is faithful to historical prices. We do so using a combination of functional data analysis and neural stochastic…
The SABR model is a benchmark stochastic volatility model in interest rate markets, which has received much attention in the past decade. Its popularity arose from a tractable asymptotic expansion for implied volatility, derived by heat…
We propose an alternative approach towards cost mitigation in volatility-managed portfolios based on smoothing the predictive density of an otherwise standard stochastic volatility model. Specifically, we develop a novel variational Bayes…
We argue that using the Shapley value of cooperative game theory as the scheme for risk allocation among non-orthogonal risk factors is a natural way of interpreting the contribution made by each of such factors to overall portfolio risk.…
Volatility Skew and Smile of Interest Rate products (Swaption and Caplet) are represented by SABR (Stochastic Alpha Beta Rho model). So, the Interest Rate derivatives model for pricing the callable exotic swaps should be comparable to the…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…
In this short note, using our geometric method introduced in a previous paper \cite{phl} and initiated by \cite{ave}, we derive an asymptotic swaption implied volatility at the first-order for a general stochastic volatility Libor Market…
Several methods to perform extrapolation of unknown anatomy were evaluated. The primary application is to enhance surgical procedures that may use partial medical images or medical images of incomplete anatomy. Le Fort-based, face-jaw-teeth…
By adopting the polynomial interpolation method, we propose an approach to hedge against the interest-rate risk of the default-free bonds by measuring the nonparallel movement of the yield-curve, such as the translation, the rotation and…
A common approach to valuing exotic options involves choosing a model and then determining its parameters to fit the volatility surface as closely as possible. We refer to this as the model calibration approach (MCA). A disadvantage of MCA…
Gulisashvili et al. [Quant. Finance, 2018, 18(10), 1753-1765] provide a small-time asymptotics for the mass at zero under the uncorrelated stochastic-alpha-beta-rho (SABR) model by approximating the integrated variance with a moment-matched…
In this paper, we study the statistical properties of the moneyness scaling transformation by Leung and Sircar (2015). This transformation adjusts the moneyness coordinate of the implied volatility smile in an attempt to remove the…
Smile is one of the key elements in identifying emotions and present state of mind of an individual. In this work, we propose a cluster of approaches to classify posed and spontaneous smiles using deep convolutional neural network (CNN)…
We provide explicit small-time formulae for the at-the-money implied volatility, skew and curvature in a large class of models, including rough volatility models and their multi-factor versions. Our general setup encompasses both European…
The aim of this study was to develop methods for evaluating the American-style option prices when the volatility of the underlying asset is described by a stochastic process. As part of this problem were developed techniques for modeling…
Exposure simulations are fundamental to many xVA calculations and are a nested expectation problem where repeated portfolio valuations create a significant computational expense. Sensitivity calculations which require shocked and unshocked…
Stochastic volatility models, where the volatility is a stochastic process, can capture most of the essential stylized facts of implied volatility surfaces and give more realistic dynamics of the volatility smile/skew. However, they come…
This paper presents a novel one-factor stochastic volatility model where the instantaneous volatility of the asset log-return is a diffusion with a quadratic drift and a linear dispersion function. The instantaneous volatility mean reverts…