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Pricing American options under stochastic volatility: A new method using Chebyshev polynomials to approximate the early exercise boundary

Tzavalis, Elias; Wang, Shijun - 2003

This paper presents a new numerical method for pricing American call options when the volatility of the price of the … volatility changes, we derive an integral representation of an American call price and the early exercise premium which holds … under stochastic volatility. This representation is used to develop a numerical method for pricing the American options …

Persistent link: https://www.econbiz.de/10010284217

Libor Market Model with Regime-Switching Volatility

Elliott, Robert; Valchev, Stoyan - Institut für Schweizerisches Bankwesen <Zürich> - 2004

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 …

Persistent link: https://www.econbiz.de/10005858810

Explaining asset pricing puzzles associated with the 1987 market crash

Benzoni, Luca; Collin-Dufresne, Pierre; Goldstein, Robert S. - 2010

The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for …

Persistent link: https://www.econbiz.de/10010292171

Implied Volatility and Risk Aversion in A Simple Model with Uncertain Growth

Lundtofte, Frederik - Institut für Schweizerisches Bankwesen <Zürich> - 2006

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

Persistent link: https://www.econbiz.de/10005858509

Optimal Investment in Variance Swaps Under Stochastic Volatility

Egloff, Daniel; Leippold, Markus; Wu, Liuren - Institut für Schweizerisches Bankwesen <Zürich> - 2006

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. …

Persistent link: https://www.econbiz.de/10005858375

Multi-Currency Quadratic Models : Theory and Evidence

Leippold, Markus; Wu, Liuren - Institut für Schweizerisches Bankwesen <Zürich>; … - 2003

The challenge of international term structure models is to simultaneously account for the properties of interest rate term structures and foreign exchange rates within an arbitrage-free framework. We extend the quadratic term structure models proposed in Leippold and Wu (2002) to multiple...

Persistent link: https://www.econbiz.de/10005858853

Ambiguity Aversion, Bond Pricing and the Non-Robustness of some affine Term Structures Ambiguity Aversion and the Term Structure of Interest Rates

Gagliardini, Patrick; Porchia, Paolo; Trojani, Fabio - Institut für Schweizerisches Bankwesen <Zürich> - 2005

We develop a continuous time general equilibrium yield curve model under ambiguity aversion. A moderate level of aggregate ambiguity affects significantly the term structure and can drive the prices of common interest rate derivatives toward the patterns observed in fixed income markets....

Persistent link: https://www.econbiz.de/10005858865

American Parisian Options

Chesney, Marc; Gauthier, Laurent - Institut für Schweizerisches Bankwesen <Zürich> - 2006

In this article, we describe the various sorts of American Parisian options and propose valuation formulae. Although there is no closed-form valuation for these products in the non perpetual case, we have been able to reformulate their price as a function of the exercise frontier. In the...

Persistent link: https://www.econbiz.de/10005858581

Asset Pricing with Matrix Jump Diffusions

Leippold, Markus; Trojani, Fabio - Swiss National Centre of Competence in Research North … - 2010

stochastically correlated default intensities, ormultivariate dynamic portfolio choice with volatility and correlation jumps. We then … dynamic portfolio choice. First, we find that a three-factor matrix AJD model can generatevariations of the implied volatility … skew term structures that are largely unrelated to the level andcomposition of the spot volatility.[...] …

Persistent link: https://www.econbiz.de/10009248844

When Uncertainty Blows in the Orchard: Comovementand the Equilibrium Volatility Risk Premia

Buraschi, Andrea; Trojani, Fabio; Vedolin, Andrea - Swiss National Centre of Competence in Research North … - 2010

In a Lucas orchard with heterogeneous beliefs, we study the link between market-wide uncertainty, difference of opinionsand co-movement of stock returns. We show that this link plays an important role in explaining the dynamics of equilibriumvolatility and correlation risk premia. In our...

Persistent link: https://www.econbiz.de/10009305103

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