Related papers: Volatility Calibration via Automatic Local Regress…
We introduce a fast and flexible Machine Learning (ML) framework for pricing derivative products whose valuation depends on volatility surfaces. By parameterizing volatility surfaces with the 5-parameter stochastic volatility inspired (SVI)…
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 introduce a local volatility model for the valuation of options on commodity futures by using European vanilla option prices. The corresponding calibration problem is addressed within an online framework, allowing the use of multiple…
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…
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…
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…
We apply convex regularization techniques to the problem of calibrating the local volatility surface model of Dupire taking into account the practical requirement of discrete grids and noisy data. Such requirements are the consequence of…
Local Stochastic Volatility (LSV) models have been used for pricing and hedging derivatives positions for over twenty years. An enormous body of literature covers analytical and numerical techniques for calibrating the model to market data.…
Deep learning for option pricing has emerged as a novel methodology for fast computations with applications in calibration and computation of Greeks. However, many of these approaches do not enforce any no-arbitrage conditions, and the…
The computation of Greeks is a fundamental task for risk managing of financial instruments. The standard approach to their numerical evaluation is via finite differences. Most exotic derivatives are priced via Monte Carlo simulation: in…
The pricing of derivatives tied to baskets of assets demands a sophisticated framework that aligns with the available market information to capture the intricate non-linear dependency structure among the assets. We describe the dynamics of…
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 an alternative approach towards cost mitigation in volatility-managed portfolios based on smoothing the predictive density of an otherwise standard stochastic volatility model. Specifically, we develop a novel variational Bayes…
Stochastic volatility models, where the volatility is a stochastic process, can capture most of the essential stylized facts of implied volatility surfaces and give more realistic dynamics of the volatility smile/skew. However, they come…
We present an algorithm for the calibration of local volatility from market option prices through deep self-consistent learning, by approximating both market option prices and local volatility using deep neural networks. Our method uses the…
We propose a fully data-driven approach to calibrate local stochastic volatility (LSV) models, circumventing in particular the ad hoc interpolation of the volatility surface. To achieve this, we parametrize the leverage function by a family…
For quantitative trading risk management purposes, we present a novel idea: the realized local volatility surface. Concisely, it stands for the conditional expected volatility when sudden market behaviors of the underlying occur. One is…
We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and…
This paper deals with the computation of second or higher order greeks of financial securities. It combines two methods, Vibrato and automatic differentiation and compares with other methods. We show that this combined technique is faster…
We propose a generic calibration framework to both vanilla and no-touch options for a large class of continuous semi-martingale models. The method builds upon the forward partial integro-differential equation (PIDE) derived in Hambly et al.…