Related papers: Multi-asset and generalised Local Volatility. An e…
This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…
We deal with the calculation of price sensitivities for stochastic volatility models. General forms for the dynamics of the underlying asset price and its volatility are considered. We make use of the chaotic (or Malliavin) calculus to…
We consider stochastic volatility models using piecewise constant parameters. We suggest a hybrid optimization algorithm for fitting the models to a volatility surface and provide some numerical results. Finally, we provide an outlook on…
In this paper, a pricing formula for volatility swaps is delivered when the underlying asset follows the stochastic volatility model with jumps and stochastic intensity. By using Feynman-Kac theorem, a partial integral differential equation…
This paper introduces a methodology for constructing a market index composed of a liquid risky asset and a liquid risk-free asset that achieves a fixed target volatility. Existing volatility-targeting strategies typically scale portfolio…
In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…
We introduce a statistical test for simultaneous jumps in the price of a financial asset and its volatility process. The proposed test is based on high-frequency data and is robust to market microstructure frictions. For the test, local…
When trading American and Asian options in the FX derivatives market, banks must calculate prices using a complex mathematical model. It is often observed that different models produce varying prices for the same exotic option, which…
This study provides a consistent and efficient pricing method for both Standard & Poor's 500 Index (SPX) options and the Chicago Board Options Exchange's Volatility Index (VIX) options under a multiscale stochastic volatility model. To…
High-frequency data observed on the prices of financial assets are commonly modeled by diffusion processes with micro-structure noise, and realized volatility-based methods are often used to estimate integrated volatility. For problems…
In this paper we analyse financial implications of exchangeability and similar properties of finite dimensional random vectors. We show how these properties are reflected in prices of some basket options in view of the well-known put-call…
Local Volatility (LV) is a powerful tool for market modeling, enabling the generation of arbitrage-free scenarios calibrated to all European options. To implement LV, we need to interpolate and extrapolate option prices. This approach is…
Stochastic volatility (SV) and local stochastic volatility (LSV) processes can be used to model the evolution of various financial variables such as FX rates, stock prices, and so on. Considerable efforts have been devoted to pricing…
We study the estimation of leverage effect and volatility of volatility by using high-frequency data with the presence of jumps. We first construct spot volatility estimator by using the empirical characteristic function of the…
We derive generalizations of Dupire formula to the cases of general stochastic drift and/or stochastic local volatility. First, we handle a case in which the drift is given as difference of two stochastic short rates. Such a setting is…
This paper proposes a hybrid credit risk model, in closed form, to price vulnerable options with stochastic volatility. The distinctive features of the model are threefold. First, both the underlying and the option issuer's assets follow…
We combine the one-dimensional Monte Carlo simulation and the semi-analytical one-dimensional heat potential method to design an efficient technique for pricing barrier options on assets with correlated stochastic volatility. Our approach…
We propose a hedging approach for general contingent claims when liquidity is a concern and trading is subject to transaction cost. Multiple assets with different liquidity levels are available for hedging. Our risk criterion targets a…
We apply numerical dynamic programming techniques to solve discrete-time multi-asset dynamic portfolio optimization problems with proportional transaction costs and shorting/borrowing constraints. Examples include problems with multiple…
This paper addresses the importance of incorporating various risk measures in portfolio management and proposes a dynamic hybrid portfolio optimization model that combines the spectral risk measure and the Value-at-Risk in the mean-variance…