Related papers: Short-Rate-Dependent Volatility Models
Under a generalized skew normal distribution we consider the problem of European option pricing. Existence of the martingale measure is proved. An explicit expression for a given European option price is presented in terms of the cumulative…
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…
In this article we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic differential delay equation (sdde). We believe that the proposed model is sufficiently flexible to…
In this paper, we propose and study a novel continuous-time model, based on the well-known constant elasticity of variance (CEV) model, to describe the asset price process. The basic idea is that the volatility elasticity of the CEV model…
We study some properties of the American option price in the stochastic volatility Heston model. We first prove that, if the payoff function is convex and satisfies some regularity assumptions, then the option value function is increasing…
We study the dependence of volatility on the stock price in the stochastic volatility framework on the example of the Heston model. To be more specific, we consider the conditional expectation of variance (square of volatility) under fixed…
We consider assets for which price $X_t$ and squared volatility $Y_t$ are jointly driven by Heston joint stochastic differential equations (SDEs). When the parameters of these SDEs are estimated from $N$ sub-sampled data $(X_{nT}, Y_{nT})$,…
We investigate the problem of pricing derivatives under a fractional stochastic volatility model. We obtain an approximate expression of the derivative price where the stochastic volatility can be composed of deterministic functions of time…
In this paper, we study the option pricing problems for rough volatility models. As the framework is non-Markovian, the value function for a European option is not deterministic; rather, it is random and satisfies a backward stochastic…
Paper is based on "The cost of illiquidity and its effects on hedging", L. C. G. Rogers and Surbjeet Singh, 2010. We generalize its thesis to constant elasticity model, which own previously used Black-Schoels model as a special case. The…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
Stochastic volatility models describe asset prices $S_t$ as driven by an unobserved process capturing the random dynamics of volatility $\sigma_t$. Here, we quantify how much information about $\sigma_t$ can be inferred from asset prices…
We study the pricing of European-style options written on forward contracts within function-valued infinite-dimensional affine stochastic volatility models. The dynamics of the underlying forward price curves are modeled within the…
We calibrate and test various variants of field theory models of the interest rate with data from eurodollars futures. A model based on a simple psychological factor are seen to provide the best fit to the market. We make a model…
This paper deals with the problem of discrete-time option pricing by the mixed fractional version of Merton model with transaction costs. By a mean-self-financing delta hedging argument in a discrete-time setting, a European call option…
Using spectral decomposition techniques and singular perturbation theory, we develop a systematic method to approximate the prices of a variety of options in a fast mean-reverting stochastic volatility setting. Four examples are provided in…
In the present work, we propose a new multifactor stochastic volatility model in which slow factor of volatility is approximated by a parabolic arc. We retain ourselves to the perturbation technique to obtain approximate expression for…
We consider an asset whose risk-neutral dynamics are described by a general class of local-stochastic volatility models and derive a family of asymptotic expansions for European-style option prices and implied volatilities. Our implied…
There is vast empirical evidence that given a set of assumptions on the real-world dynamics of an asset, the European options on this asset are not efficiently priced in options markets, giving rise to arbitrage opportunities. We study…
One of the risks derived from selling long term policies that any insurance company has, arises from interest rates. In this paper we consider a general class of stochastic volatility models written in forward variance form. We also deal…