Related papers: Implied Volatility Expansions for VIX Options in F…
An explicit weak solution for the 3/2 stochastic volatility model is obtained and used to develop a simulation algorithm for option pricing purposes. The 3/2 model is a non-affine stochastic volatility model whose variance process is the…
Financial contracts with options that allow the holder to extend the contract maturity by paying an additional fixed amount found many applications in finance. Closed-form solutions for the price of these options have appeared in the…
Various parametric volatility models for financial data have been developed to incorporate high-frequency realized volatilities and better capture market dynamics. However, because high-frequency trading data are not available during the…
We address the information content of European option prices about volatility in terms of the Fisher information matrix. We assume that observed option prices are centred on the theoretical price provided by Heston's model disturbed by…
We develop a stochastic volatility framework for modeling multiple currencies based on CBI-time-changed L\'evy processes. The proposed framework captures the typical risk characteristics of FX markets and is coherent with the symmetries of…
In this article, we consider the small-time asymptotics of options on a \emph{Leveraged Exchange-Traded Fund} (LETF) when the underlying Exchange Traded Fund (ETF) exhibits both local volatility and jumps of either finite or infinite…
The rough Bergomi (rBergomi) model can accurately describe the historical and implied volatilities, and has gained much attention in the past few years. However, there are many hidden unknown parameters or even functions in the model. In…
We examine whether model-based spot volatility estimators extracted from traded options data enhance the predictive power of the Heterogeneous Autoregressive (HAR) model for realized volatility. Specifically, we infer spot volatility under…
In our recent publication [1] we presented an exponential series approximation suitable for highly accurate computation of the complex error function in a rapid algorithm. In this Short Communication we describe how a simplified…
The research presented in this article provides an alternative option pricing approach for a class of rough fractional stochastic volatility models. These models are increasingly popular between academics and practitioners due to their…
We consider the joint SPX-VIX calibration within a general class of Gaussian polynomial volatility models in which the volatility of the SPX is assumed to be a polynomial function of a Gaussian Volterra process defined as a stochastic…
In this paper, we present a method for constructing a (static) portfolio of co-maturing European options whose price sign is determined by the skewness level of the associated implied volatility. This property holds regardless of the…
A parsimonious generalization of the Heston model is proposed where the volatility-of-volatility is assumed to be stochastic. We follow the perturbation technique of Fouque et al (2011, CUP) to derive a first order approximation of the…
In equity and foreign exchange markets the risk-neutral dynamics of the underlying asset are commonly represented by stochastic volatility models with jumps. In this paper we consider a dense subclass of such models and develop analytically…
Cumulant expansion is used to derive accurate closed-form approximation for Monthly Sum Options in case of constant volatility model. Payoff of Monthly Sum Option is based on sum of $N$ caped (and probably floored) returns. It is noticed,…
This paper derives a new semi closed-form approximation formula for pricing an up-and-out barrier option under a certain type of stochastic volatility model including SABR model by applying a rigorous asymptotic expansion method developed…
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…
In this paper, we develop a general rough volatility model for commodities that provides an automatic calibration of the initial term structure of the futures prices and an appropriate treatment of the Samuelson effect. After the…
The martingale expansion provides a refined approximation to the marginal distributions of martingales beyond the normal approximation implied by the martingale central limit theorem. We develop a martingale expansion framework specifically…
In this paper we derive an easily computed approximation to European basket call prices for a local volatility jump-diffusion model. We apply the asymptotic expansion method to find the approximate value of the lower bound of European…