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Rough volatility models have recently been empirically shown to provide a good fit to historical volatility time series and implied volatility smiles of SPX options. They are continuous-time stochastic volatility models, whose volatility process is driven by a fractional Brownian motion with...
Persistent link: https://www.econbiz.de/10013322922
Simple analytical solutions for the prices of discretely monitored barrier options do not yet exist in the literature. This paper presents a semi-analytical and fully explicit solution for pricing discretely monitored barrier options when the underlying asset is driven by a general Lévy...
Persistent link: https://www.econbiz.de/10012967550
In this paper, we derive a closed-form explicit model-free formula for the (Black-Scholes) implied volatility. The method is based on the novel use of the Dirac Delta function, corresponding delta families, and the change of variable technique. The formula is expressed through either a limit or...
Persistent link: https://www.econbiz.de/10012837341
This paper establishes the second-order convergence rates of the continuous-time Markov chain (CTMC) approximation method for pricing continuously monitored occupation time derivatives (step options, conditional Asian options) and arithmetic Asian options and their Greeks. We fill the gap in the...
Persistent link: https://www.econbiz.de/10012896119
In this paper, we develop a Markov chain-based approximation method to price arithmetic Asian options for short maturities under the case of geometric Brownian motion. It has the advantage of being a closed-form approximation involving only matrices. It is an accurate, efficient, and stable...
Persistent link: https://www.econbiz.de/10012954544
In this paper, we propose a general framework for the valuation of options in stochas-tic local volatility (SLV) models with a general correlation structure, which includes the Stochastic Alpha Beta Rho (SABR) model and the quadratic SLV model as special cases. Standard stochastic volatility...
Persistent link: https://www.econbiz.de/10012899472
In this paper, we propose a general valuation framework for option pricing problems related to skew diffusions based on a continuous-time Markov chain approximation to the underlying stochastic process. We obtain an explicit closed-form approximation of the transition density of a general skew...
Persistent link: https://www.econbiz.de/10012868167
This paper establishes the precise second order convergence rates of the continuous-time Markov chain (CTMC) approximation method for pricing options and calculating its Greeks under the general framework of stochastic local volatility models, which include the Heston and SABR models as special...
Persistent link: https://www.econbiz.de/10014349082
martingale is a martingale or a uniformly integrable martingale. Blei and Engelbert (2009) and Mijatovi c and Urusov (2012c) give … martingale property of the stock price process in correlated stochastic volatility models, we extend their work to the arbitrary …
Persistent link: https://www.econbiz.de/10013062701
In this paper, we extend the lower-upper bound approximation (LUBA) idea of Broadie and Detemple [Broadie, M., Detemple, J., (1996) American option valuation: New bounds, approximations, and comparison of existing methods. Review of Financial Studies. 9(4): 1211-1250] to the Laplace space. We...
Persistent link: https://www.econbiz.de/10012995888