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 …

existing methods lies in its straightforward application to models with stochastic volatility and stochastic interest rates. We … exploit this advantage by providing an analysis of the impact of volatility mean-reversion, volatility of volatility, and …

In this paper we construct arbitrage-free market models of stochastic volatility type for one stock, one bank account …-option market models with a prespecified volatility structure. …

and economically strong effect on the implied volatility of currency options, on the shap e of the implied volatility … smile, on the volatility risk-premia, and on future currency returns. We do cument that the volatility of macro economic …

volatility and risk aversion that are similar to the ones observed in the data. In addition, the model produces an implied …

We derive a closed-form asymptotic expansion formula for option implied volatility under a two-factor jump …-diffusion stochastic volatility model when time-to-maturity is small. Based on numerical experiments we describe the range of time … free of the unobserved spot volatility. Therefore, the model can be calibrated on option data pooled across different …

. The analysis is performed in the framework of a two-factor model with local and stochastic volatility. We describe an … algorithm for building the power series approximation of implied volatility. In the case of CEV volatility of volatility we …

constant volatility. In this paper, we examine the best performing parametric models against nonparametric alternatives. In … particular, we study the stochastic volatility (SV) and stochastic volatility randomjump (SVJ) models as parametric benchmarks …