Related papers: Realized Local Volatility Surface
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…
A volatility surface is an important tool for pricing and hedging derivatives. The surface shows the volatility that is implied by the market price of an option on an asset as a function of the option's strike price and maturity. Often,…
We propose a deep hedging framework for index option portfolios, grounded in a realistic market simulator that captures the joint dynamics of S&P 500 returns and the full implied volatility surface. Our approach integrates surface-informed…
We tackle the calibration of the so-called Stochastic-Local Volatility (SLV) model. This is the class of financial models that combines the local and stochastic volatility features and has been subject of the attention by many researchers…
We present a new class of Bayesian dynamic models for bivariate price-realized volatility time series in financial forecasting. A novel dynamic gamma process model adopted for realized volatility is integrated with traditional Bayesian…
This paper offers a new approach to modeling and forecasting of nonstationary time series with applications to volatility modeling for financial data. The approach is based on the assumption of local homogeneity: for every time point, there…
We calculate the realized volatility in the spin model of financial markets and examine the returns standardized by the realized volatility. We find that moments of the standardized returns agree with the theoretical values of standard…
The local volatility model is a widely used for pricing and hedging financial derivatives. While its main appeal is its capability of reproducing any given surface of observed option prices---it provides a perfect fit---the essential…
In this paper, we implement and test two types of market-based models for European-type options, based on the tangent Levy models proposed recently by R. Carmona and S. Nadtochiy. As a result, we obtain a method for generating Monte Carlo…
This paper proposes an enhanced approach to modeling and forecasting volatility using high frequency data. Using a forecasting model based on Realized GARCH with multiple time-frequency decomposed realized volatility measures, we study the…
Recent literature seek to forecast implied volatility derived from equity, index, foreign exchange, and interest rate options using latent factor and parametric frameworks. Motivated by increased public attention borne out of the…
The Local Volatility model is a well-known extension of the Black-Scholes constant volatility model whereby the volatility is dependent on both time and the underlying asset. This model can be calibrated to provide a perfect fit to a wide…
We study a new measure of codependency in the second moment of a continuous-time multivariate asset price process, which we name the realized copula of volatility. The statistic is based on local volatility estimates constructed from…
In financial markets, low prices are generally associated with high volatilities and vice-versa, this well known stylized fact usually being referred to as leverage effect. We propose a local volatility model, given by a stochastic…
We study tail risk dynamics in high-frequency financial markets and their connection with trading activity and market uncertainty. We introduce a dynamic extreme value regression model accommodating both stationary and local unit-root…
Accurate forecasting of volatility and return quantiles is essential for evaluating financial tail risks such as value-at-risk and expected shortfall. This study proposes an extension of the traditional stochastic volatility model, termed…
This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive…
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…
Several asymptotic results for the implied volatility generated by a rough volatility model have been obtained in recent years (notably in the small-maturity regime), providing a better understanding of the shapes of the volatility surface…
Purpose: This study introduces a novel framework for identifying and exploiting predictive lead-lag relationships in financial markets. We propose an integrated approach that combines advanced statistical methodologies with machine learning…