Related papers: Explicit local volatility formula for Cheyette-typ…
The paper studies estimation of parameters of diffusion market models from historical data. The standard definition of implied volatility for these models presents its value as an implicit function of several parameters, including the…
Some expansion methods have been proposed for approximately pricing options which has no exact closed formula. Benhamou et al. (2010) presents the smart expansion method that directly expands the expectation value of payoff function with…
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…
This article addresses the problem of approximating the price of options on discrete and continuous arithmetic average of the underlying, i.e. discretely and continuously monitored Asian options, in local volatility models. A…
It is common for long financial time series to exhibit gradual change in the unconditional volatility. We propose a new model that captures this type of nonstationarity in a parsimonious way. The model augments the volatility equation of a…
We provide a short-time large deviation principle (LDP) for stochastic volatility models, where the volatility is expressed as a function of a Volterra process. This LDP does not require strict self-similarity assumptions on the Volterra…
We present an option pricing formula for European options in a stochastic volatility model. In particular, the volatility process is defined using a fractional integral of a diffusion process and both the stock price and the volatility…
The paper introduces a general strategy for identifying strong local minimizers of variational functionals. It is based on the idea that any variation of the integral functional can be evaluated directly in terms of the appropriate…
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…
The paper offers a unified approach to the study of three locally adaptive estimation methods in the context of univariate time series from both theoretical and empirical points of view. A general procedure for the computation of critical…
It has often been stated that, within the class of continuous stochastic volatility models calibrated to vanillas, the price of a VIX future is maximized by the Dupire local volatility model. In this article we prove that this statement is…
Besides accuracy, recent studies on machine learning models have been addressing the question on how the obtained results can be interpreted. Indeed, while complex machine learning models are able to provide very good results in terms of…
Guyon and Lekeufack recently proposed a path-dependent volatility model and documented its excellent performance in fitting market data and capturing stylized facts. The instantaneous volatility is modeled as a linear combination of two…
We propose a clustered local projection (clustered LP) method to estimate impulse response functions in a class of time-varying models where parameter variation is linked to a low-dimensional matrix of observables. We show that the…
We derive a forward partial integro-differential equation for prices of call options in a model where the dynamics of the underlying asset under the pricing measure is described by a -possibly discontinuous- semimartingale. A uniqueness…
This paper deals with the exact calibration of semidiscretized stochastic local volatility (SLV) models to their underlying semidiscretized local volatility (LV) models. Under an SLV model, it is common to approximate the fair value of…
While the original Ait-Sahalia interest rate model has been found considerable use as a model for describing time series evolution of interest rates, it may not possess adequate specifications to explain responses of interest rates to…
In this paper we study the small noise asymptotic expansions for certain classes of local volatility models arising in finance. We provide explicit expressions for the involved coefficients as well as accurate estimates on the remainders.…
In April 2020, the Chicago Mercantile Exchange temporarily switched the pricing formula for West Texas Intermediate oil market options from the Black model to the Bachelier model. In this context, we introduce an additive Bachelier model…
We show that, for the purpose of pricing Swaptions, the Swap rate and the corresponding Forward rates can be considered lognormal under a single martingale measure. Swaptions can then be priced as options on a basket of lognormal assets and…