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Variance and interest rate risk in unit-linked insurance policies
Baños, David; Lagunas-Merino, Marc; Ortiz-Latorre, Salvador - In: Risks : open access journal 8 (2020) 3/84, pp. 1-23
this paper, we consider a general class of stochastic volatility models written in forward variance form. We also deal with … volatility model with a Vasicek interest rate model. …
Persistent link: https://www.econbiz.de/10012293269
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Gaussian process regression for swaption cube construction under no-arbitrage constraints
Cousin, Areski; Deleplace, Adrien; Misko, Adrien - In: Risks : open access journal 10 (2022) 12, pp. 1-19
In this paper, we introduce a 3D finite dimensional Gaussian process (GP) regression approach for learning arbitrage-free swaption cubes. Based on the possibly noisy observations of swaption prices, the proposed 'constrained' GP regression approach is proven to be arbitrage-free along the strike...
Persistent link: https://www.econbiz.de/10014230924
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Effect of variance swap in hedging volatility risk
Shen, Yang - In: Risks : open access journal 8 (2020) 3/70, pp. 1-34
This paper studies the effect of variance swap in hedging volatility risk under the mean-variance criterion. We … consider two mean-variance portfolio selection problems under Heston's stochastic volatility model. In the first problem, the … variance swap can be used to hedge against the volatility risk. In the second problem, only the bank account and the stock can …
Persistent link: https://www.econbiz.de/10012293125
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Lévy interest rate models with a long memory
Hainaut, Donatien - In: Risks : open access journal 10 (2022) 1, pp. 1-28
This article proposes an interest rate model ruled by mean reverting Lévy processes with a sub-exponential memory of their sample path. This feature is achieved by considering an Ornstein-Uhlenbeck process in which the exponential decaying kernel is replaced by a Mittag-Leffler function. Based...
Persistent link: https://www.econbiz.de/10012804840
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Pricing and hedging bond power exchange options in a stochastic string term-structure model
Blenman, Lloyd P.; Bueno-Guerrero, Alberto; Clark, Steven P. - In: Risks : open access journal 10 (2022) 10, pp. 1-17
We study power exchange options written on zero-coupon bonds under a stochastic string term-structure framework. Closed-form expressions for pricing and hedging bond power exchange options are obtained and, as particular cases, the corresponding expressions for call power options and constant...
Persistent link: https://www.econbiz.de/10013555525
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Dynamic asset pricing in a unified Bachelier-Black-Scholes-Erton model
Lindquist, W. Brent; Račev, Svetlozar T.; Gnawali, Jagdish - In: Risks : open access journal 12 (2024) 9, pp. 1-24
We present a unified, market-complete model that integrates both Bachelier and Black- Scholes-Merton frameworks for asset pricing. The model allows for the study, within a unified framework, of asset pricing in a natural world that experiences the possibility of negative security prices or...
Persistent link: https://www.econbiz.de/10015065971
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A generative adversarial network approach to calibration of local stochastic volatility models
Cuchiero, Christa; Khosrawi, Wahid; Teichmann, Josef - In: Risks : open access journal 8 (2020) 4/101, pp. 1-31
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 … be seen in the context of neural SDEs and (causal) generative adversarial networks: we generate volatility surfaces by …
Persistent link: https://www.econbiz.de/10012373082
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How does the volatility of volatility depend on volatility?
Rømer, Sigurd Emil; Poulsen, Rolf - In: Risks : open access journal 8 (2020) 2/59, pp. 1-18
We investigate the state dependence of the variance of the instantaneous variance of the S&P 500 index empirically. Time-series analysis of realized variance over a 20-year period shows strong evidence of an elasticity of variance of the variance parameter close to that of a log-normal model,...
Persistent link: https://www.econbiz.de/10012292915
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Model-free stochastic collocation for an arbitrage-free implied volatility, part II
Le Floc'h, Fabien; Oosterlee, Cornelis Willebrordus - In: Risks : open access journal 7 (2019) 1/30, pp. 1-21
implied volatility and compare the spline collocation results with those obtained through arbitrage-free interpolation …
Persistent link: https://www.econbiz.de/10012015886
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Real-option valuation in a finite-time, incomplete market with jump diffusion and investor-utility inflation
Hillman, Timothy; Zhang, Nan; Zhuo, Jin - In: Risks : open access journal 6 (2018) 2, pp. 1-20
are restricted in order to preserve the drift and the volatility of the project-value process that it modifies. By …
Persistent link: https://www.econbiz.de/10011866522