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Worst-of Options and Correlation Skew Under a Stochastic Correlation Framework
Marabel Romo, Jacinto - 2013
existence of correlation term structure and correlation skew. The article shows that the Wishart specification can generate … different patterns corresponding to the correlation skew for a wide range of correlation term structures.Another advantage of … correlation premium and show that the consideration of stochastic correlation is a key element for the valuation of these …
Persistent link: https://www.econbiz.de/10013091068
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Pricing American Options in the Heston Model : A Close Look on Incorporating Correlation
Ruckdeschel, Peter - 2014
marginal tree moments up to order two against the Heston model ones. The correlation between the driving Brownian motions is … the match between tree and model correlation. In some nodes, we are even able to further match moments of higher order …
Persistent link: https://www.econbiz.de/10013068353
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On Cross-Currency Models with Stochastic Volatility and Correlated Interest Rates
Grzelak, Lech A. - 2014
We construct multi-currency models with stochastic volatility and correlated stochastic interest rates with a full matrix of correlations. We first deal with a foreign exchange (FX) model of Heston-type, in which the domestic and foreign interest rates are generated by the short-rate process of...
Persistent link: https://www.econbiz.de/10013069789
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A Closed-Form Solution for Outperformance Options with Stochastic Correlation and Stochastic Volatility
Marabel Romo, Jacinto - 2014
correlation between the underlying assets and are usually priced assuming constant instantaneous correlations.This article … depends crucially on the term structure of the correlation corresponding to the assets returns. Furthermore, the comparison of … institutions reveals the existence of a stochastic correlation premium …
Persistent link: https://www.econbiz.de/10013048541
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Pricing of Derivatives with Stochastically Correlated Underlyings
Büchler, Matthias - 2014
We price derivatives defined for different asset classes with a full stochastic dependence structure. We consider jointly geometric Brownian motions and mean-reversion processes with a a stochastic variance-covariance matrix driven by a Wishart process. These models cannot be treated within the...
Persistent link: https://www.econbiz.de/10013063402
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Deconstructing Correlation : Valuing Basket Options with Asset Smiles and Correlation Smiles
Austing, Peter - 2022
smiles and correlation smiles. At first sight, the task seems formidable. However, by reformulating the problem, we can …
Persistent link: https://www.econbiz.de/10013297391
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On Correlating Lévy Processes
Eberlein, Ernst; Madan, Dilip B. - 2010
the required correlation between the Brownian motions and we show how to correct for this. Pairwise tests illustrate the …
Persistent link: https://www.econbiz.de/10014045768
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Jumps in Commodity Markets
Nguyen, Duc Binh Benno - 2019
This paper investigates price jumps in commodity markets. We find that jumps are rare and extreme events but occur less frequently than in stock markets. Nonetheless, jump correlations across commodities can be high depending on the commodity sectors. Energy, metal and grains commodities show...
Persistent link: https://www.econbiz.de/10012900597
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Seasonal Stochastic Volatility : Implications for the Pricing of Commodity Options
Arismendi-Zambrano, Juan - 2019
Many commodity markets contain a strong seasonal component not only at the price level, but also in volatility. In this paper, the importance of seasonal behavior in the volatility for the pricing of commodity options is analyzed. We propose a seasonally varying long-run mean variance process...
Persistent link: https://www.econbiz.de/10012905864
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Optimal Stochastic Recovery for Base Correlation
Amraoui, Salah - 2016
can allow. Indeed, using a 40% recovery assumption and 100% default correlation gives a spread of 39bp on the 5Y [30 …
Persistent link: https://www.econbiz.de/10013000785