Related papers: Regime recovery using implied volatility in Markov…
Markov switching models are often used to analyze financial returns because of their ability to capture frequently observed stylized facts. In this paper we consider a multivariate Student-t version of the model as a viable alternative to…
Previous research has found that high-frequency traders will vary the bid or offer price rapidly over periods of milliseconds. This is a benefit to fast traders who can time their trades with microsecond precision, however it is a cost to…
In this paper analytic formulas for electricity derivatives are calculated. To this end, we assume that electricity spot prices follow a 3-regime Markov regime-switching model with independent spikes and drops and periodic transition…
Financial markets alternate between tranquil periods and episodes of stress, and return dynamics can change substantially across these regimes. We study regime-dependent dynamics in developed and developing equity indices using a…
It is well-known that, in the Bachelier model, when asset prices and volatilities are uncorrelated, the implied volatility coincides with the fair value of the volatility swap. In this paper, via classical It\^o calculus and Taylor…
We propose a new model for the forecasting of both the implied volatility surfaces and the underlying asset price. In the spirit of Guyon and Lekeufack (2023) who are interested in the dependence of volatility indices (e.g. the VIX) on the…
Dynamic jumps in the price and volatility of an asset are modelled using a joint Hawkes process in conjunction with a bivariate jump diffusion. A state space representation is used to link observed returns, plus nonparametric measures of…
We prove that the variance swap rate (fair strike) equals the price of a co-terminal European-style contract when the underlying is an exponential Markov process, time-changed by an arbitrary continuous stochastic clock, which has arbitrary…
In this paper we develop a linear expectile hidden Markov model for the analysis of cryptocurrency time series in a risk management framework. The methodology proposed allows to focus on extreme returns and describe their temporal evolution…
This paper investigates short-term behaviors of implied volatility of derivatives written on indexes in equity markets when the index processes are constructed by using a ranking procedure. Even in simple market settings where stock prices…
In this paper, we have studied option pricing methods that are based on a Bayesian Markov-Switching Vector Autoregressive (MS-BVAR) process using a risk-neutral valuation approach. A BVAR process, which is a special case of the Bayesian…
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…
The paper develops a new class of financial market models. These models are based on generalized telegraph processes: Markov random flows with alternating velocities and jumps occurring when the velocities are switching. While such markets…
In this paper we use Malliavin Calculus techniques in order to obtain expressions for the short-time behavior of the at-the-money implied volatility (ATM-IV) level and skew for a jump-diffusion stock price. The diffusion part is assumed to…
We consider plain vanilla European options written on an underlying asset that follows a continuous time semi-Markov multiplicative process. We derive a formula and a renewal type equation for the martingale option price. In the case in…
We consider a financial market in which the short rate is modeled by a continuous time Markov chain (CTMC) with a finite state space. In this setting, we show how to price any financial derivative whose payoff is a function of the state of…
Recent empirical evidence has highlighted the crucial role of jumps in both price and volatility within the cryptocurrency market. In this paper, we integrate price--volatility co-jumps and volatility short-term dependency into a coherent…
We pick up the regime switching model for asset returns introduced by Rogers and Zhang. The calibration involves various markets including implied volatility in order to gain additional predictive power. We focus on the calculation of risk…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We consider a tick-by-tick model of price formation, in which buy and sell orders are modeled as self-exciting point processes (Hawkes process), similar to the one in [Bacry, Delattre, Hoffmann, Muzy, Modelling microstructure noise with…