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Multivariate FX Models with Jumps : Triangles, Quantos and Implied Correlation
Ballotta, Laura - 2017
We propose an integrated model of the joint dynamics of FX rates and asset prices for the pricing of FX derivatives, including Quanto products; the model is based on a multivariate construction for Levy processes which proves to be analytically tractable. The approach allows for simultaneous...
Persistent link: https://www.econbiz.de/10012963076
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Quanto Implied Correlation in a Multi-Lévy Framework
Ballotta, Laura - 2015
method to the vanilla and the Quanto market. As Quanto products offer significant exposure to the correlation between … exchange rates and asset prices, they allow access to a market implied measure of this correlation. By means of a joint …
Persistent link: https://www.econbiz.de/10013027591
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Equity Correlations Implied by Index Options : Estimation and Model Uncertainty Analysis
Cont, Rama - 2010
this method to equity and index options shows that, while multivariate diffusion models with constant correlation fail to … correlation patterns compatible with observed prices of index options. Our method allows, as a by product, to quantify this model …
Persistent link: https://www.econbiz.de/10013144664
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Option-Implied Dependence and Correlation Risk Premium
Bondarenko, Oleg - 2020
market moves down or up. The risk premium for the down correlation is strongly negative, while the opposite is true for the … up correlation. These findings are consistent with the economic intuition that investors dislike the loss of … diversification when markets fall, but they actually prefer high correlation when markets rally …
Persistent link: https://www.econbiz.de/10012832219
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Realizing smiles: pricing options with realized volatility
Corsi, Fulvio; Fusari, Nicola; Vecchia, Davide la - 2010
We develop a discrete-time stochastic volatility option pricing model, which exploits the information contained in high-frequency data. The Realized Volatility (RV) is used as a proxy of the unobservable log-returns volatility. We model its dynamics by a simple but effective (pseudo) long memory...
Persistent link: https://www.econbiz.de/10003973052
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Option calibration of exponential Lévy models : implementation and empirical results
Söhl, Jakob; Trabs, Mathias - 2012
Observing prices of European put and call options, we calibrate exponential Lévy models nonparametrically. We discuss the implementation of the spectral estimation procedures for Lévy models of finite jump activity as well as for self-decomposable Lévy models and improve these methods....
Persistent link: https://www.econbiz.de/10009502936
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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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Noise traders' trigger rates, FX options, and smiles
Pierdzioch, Christian - 2000
A contingent claims valuation model which allows to highlight the implications of program trading in spot markets for the pricing of European-style foreign currency options and for the volatility strike structure implicit in these contracts is devoloped. The curvature of the volatility strike...
Persistent link: https://www.econbiz.de/10011476532
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The price of the smile and variance risk premia
Gruber, Peter H.; Tebaldi, Claudio; Trojani, Fabio - 2015 - This version: September 8, 2015
In a tractable stochastic volatility model, we identify the price of the smile as the price of the unspanned risks traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a downward sloping term structure of low-frequency variance...
Persistent link: https://www.econbiz.de/10011412294
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Are Jumps in Time Changed L évy Models Superfluous? An Empirical Investigation
Herrmann, Klaus - 2012
This paper provides empirical evidence that jumps in the underlying stock price process are superfluous for European option pricing in time changed L évy models. We introduce a model with a.s. continuous sample paths and a parsimonious description in terms of free parameters. The conducted in-...
Persistent link: https://www.econbiz.de/10013105270