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Covariance Dependent Kernels, a Q-Affine GARCH for multi-asset option pricing
Rastegari, Javad; Stentoft, Lars; Escobar, Marcos - 2021
dependent on variances and correlation. This extends the existing literature by explicitly modeling correlation dependent … covariance-dependent kernel is also shown to significantly impact prices of two-asset correlation options leading to up to 53 …
Persistent link: https://www.econbiz.de/10013313981
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Parametrization of Correlations in Multi-Stochastic Volatility/Local-Stochastic Volatility Models
Bergomi, Lorenzo - 2020
issues involves the construction of the global correlation matrix. Typically correlation matrices for each assets' degrees of … freedom are set and the challenge is to build a global correlation matrix which at least recovers these individual correlation … general methodology for constructing such correlation matrices that uses few parameters, is based on correlations of physical …
Persistent link: https://www.econbiz.de/10012838420
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Option pricing under linear autoregressive dynamics, heteroskedasticity, and conditional leptokurtosis
Hafner, Christian M.; Herwartz, Helmut - 1999
Daily returns of financial assets are frequently found to exhibit positive autocorrelation at lag 1. When specifying a linear AR(l) conditional mean, one may ask how this predictability affects option prices. We investigate the dependence of option prices on autoregressive dynamics under...
Persistent link: https://www.econbiz.de/10009580460
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Options Valuation and Calibration for Leveraged Exchange-Traded Funds with Heston-Nandi and Inverse Gaussian GARCH Models
Cao, Hongkai - 2019
Leveraged exchange-traded funds (LETF) are newly introduced ETFs that have become increasingly popular. It closely tracks the value of an underlying index while allowing for additional leverage. In this paper, we consider the valuation of options written on leveraged exchange-traded funds under...
Persistent link: https://www.econbiz.de/10012896692
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Pricing of Variance and Volatility Swaps with Semi-Markov Volatilities
Swishchuk, Anatoliy V. - 2009
We consider a semi-Markov modulated market consisting of a riskless asset or bond, B, and a risky asset or stock, S, whose dynamics depend on a semi-Markov process x. Using the martingale characterization of semi-Markov processes, we note the incompleteness of semi-Markov modulated markets and...
Persistent link: https://www.econbiz.de/10014207748
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The Forward Smile in Local-Stochastic Volatility Models
Mazzon, Andrea - 2015
We introduce an asymptotic expansion for forward start options in a multi-factor local-stochastic volatility model. We derive explicit approximation formulas for the so-called forward implied volatility which can be useful to price complex path-dependent options, as cliquets. The expansion...
Persistent link: https://www.econbiz.de/10013028825
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Stochastic Volatility III : Volatility Models and Volatility Surfaces
Vanini, Paolo - 2010
We consider implied volatility, time-dependent volatility, local volatility and stochastic volatility. We derive relationships between the different concepts. The relationships are of an exact analytical type if this is possible, else we use expansions to obtain approximate expressions. We close...
Persistent link: https://www.econbiz.de/10013142702
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GARCH option pricing models and the variance risk premium
Zhang, WenJun; Zhang, Jin E. - In: Journal of risk and financial management : JRFM 13 (2020) 3/51, pp. 1-21
In this paper, we modify Duan’s (1995) local risk-neutral valuation relationship (mLRNVR) for the GARCH option-pricing models. In our mLRNVR, the conditional variances under two measures are designed to be different and the variance process is more persistent in the risk-neutral measure than...
Persistent link: https://www.econbiz.de/10012174118
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Modelling financial time series
Taylor, Stephen - 2007 - 2. edition
Persistent link: https://www.econbiz.de/10003553502
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Comparing some alternative Lévy base correlation models for pricing and hedging CDO tranches
Masol, Viktoriya; Schoutens, Wim - 2008
Persistent link: https://www.econbiz.de/10003709746