Related papers: Understanding Short-Term Implied Volatility Dynami…
We propose a new static parameterization of the implied volatility surface which is constructed by using polynomials of sigmoid functions combined with some other terms. This parameterization is flexible enough to fit market implied…
Options with maturities below one week, hereafter "ultra-short-term" options, have seen a sharp increase in trading activity in recent years. Yet, these instruments are difficult to price jointly using classical pricing models due to the…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
Implied volatility is at the very core of modern finance, notwithstanding standard option pricing models continue to derive option prices starting from the joint dynamics of the underlying asset price and the spot volatility. These models…
We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most…
We treat implied volatility surface (IVS) reconstruction as a learning problem guided by two principles. First, we adopt a meta-learning view that trains across trading days to learn a procedure that maps sparse option quotes to a full IVS…
This paper introduces a unified approach for modeling high-frequency financial data that can accommodate both the continuous-time jump-diffusion and discrete-time realized GARCH model by embedding the discrete realized GARCH structure in…
The sampling efficiency of MCMC methods in Bayesian inference for stochastic volatility (SV) models is known to highly depend on the actual parameter values, and the effectiveness of samplers based on different parameterizations varies…
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…
We consider the pricing of derivatives written on the discretely sampled realized variance of an underlying security. In the literature, the realized variance is usually approximated by its continuous-time limit, the quadratic variation of…
This paper develops an asymptotic distribution theory for an endogenous instrumentation approach in quantile predictive regressions when both generated covariates and persistent predictors are used. The generated covariates are obtained…
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…
We introduce a new class of continuous-time models of the stochastic volatility of asset prices. The models can simultaneously incorporate roughness and slowly decaying autocorrelations, including proper long memory, which are two stylized…
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…
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…
In financial terms, an implied volatility surface can be described by its term structure, its skewness and its overall volatility level. We use a PCA variational auto-encoder model to perfectly represent these descriptors into a latent…
We derive a higher-order asymptotic expansion of the conditional characteristic function of the increment of an It\^o semimartingale over a shrinking time interval. The spot characteristics of the It\^o semimartingale are allowed to have…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
Volatility for financial assets returns can be used to gauge the risk for financial market. We propose a deep stochastic volatility model (DSVM) based on the framework of deep latent variable models. It uses flexible deep learning models to…
For a given time horizon DT, this article explores the relationship between the realized volatility (the volatility that will occur between t and t+DT), the implied volatility (corresponding to at-the-money option with expiry at t+DT), and…