This paper studies modelling and existence issues for market models of stochastic implied volatility in a continuous … we give explicit examples of volatility coefficients satisfying the required assumptions. …

This paper provides regime-switching stochastic volatility extensions of the LIBOR market model. First, the … instantaneous forward LIBOR volatility is modulated by a continuous time homogeneous Markov chain. In a second parameterization, the … volatility is modelled by a square root process with a regime-switching reference level. We obtain analytical solutions for the …

adjusted to the volatility structure. The proposed approach leads to an efficient and exible constron met for trinomial trees …

derivatives are mostly uncorrelated, advocating the presence of unspanned volatility. This letter shows that their results can be … explained in the framework of a Gaussian HJM model with humped term-structure volatility. This implies that hedging interest …

span the volatility risk, an investor increases her investment in theunderlying stock. In addition, the investors indirect … utility increases significantly when allowed to span the volatility risk using variance swap contracts. …