Bermudan cancelable features. We consider a three-factor pricing model with FX volatility skew which results in a time …

We construct multi-currency models with stochastic volatility and correlated stochastic interest rates with a full … interest rate by a stochastic volatility displaced-diffusion Libor Market Model [AA02], which can model an interest rate smile …

The Heston model stands out from the class of stochastic volatility (SV) models mainly for two reasons. Firstly, the … process for the volatility is nonnegative and mean-reverting, which is what we observe in the markets. Secondly, there exists …. -- Heston model ; vanilla option ; stochastic volatility ; Monte Carlo simulation ; Feller condition ; option pricing with FFT …

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 structure is explained by focusing attention on the expected … characteristic convex shape of volatility strike structures documented in the empirical literature. A volatility-based test for …

period to alter either the level or the volatility of the $/DM spot rate is examined. Volatility quotes implicit in foreign …

Market analysts and central banks often use the implied volatility of FX options as an indicator of expected exchange … deviate the value of implied volatility from the exchange rate variability expected by the market. These biasing factors are … one month. However, implied volatility provides a biased estimate, and does not encompass the information included in …

Option prices seem to behave in ways inconsistent with the Black-Scholes model. Implied volatility varies with the … strike price in a parabolic shape that is often called the volatility 'smile.' My objective in this paper is to identify … promising in explaining the volatility smile. Applying this to the ERM data, I find that the probability of a devaluation in the …

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 … generalized to a wider class of local-stochastic volatility models. We illustrate the effectiveness of the technique through some …

volatility is low, and high when implied volatility is high. However, a time-varying volatility risk premium (ex-post) might only …Weekly option writing returns in currency markets are (volatility-) regime dependent: they are low when implied … be part of the explanation. Daily exchange rate returns show (volatility-)regime dependent departures from normality and …

The paper examines the effect of exchange rate risk on the conditional relationship between beta risk and return in … against exchange rate risk. However, when this risk is controlled and hedged with forward contracts, theconditional … relationship between beta risk and return appears asymmetric and presents a lower beta risk premium than the one takes place under …