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This paper introduces a new class of stochastic volatility models which allows for stochastic volatility of volatility (SVV): Volatility modulated non-Gaussian Ornstein-Uhlenbeck (VMOU) processes. Various probabilistic properties of (integrated) VMOU processes are presented. Further we study the...
Persistent link: https://www.econbiz.de/10013117444
An enhanced option pricing framework that makes use of both continuous and discontinuous time paths based on a geometric Brownian motion and Poisson-driven jump processes respectively is performed in order to better fit with real-observed stock price paths while maintaining the analytical...
Persistent link: https://www.econbiz.de/10013118115
This paper develops an asymptotic expansion technique in momentum space for stochastic filtering. It is shown that Fourier transformation combined with a polynomial-function approximation of the nonlinear terms gives a closed recursive system of ordinary differential equations (ODEs) for the...
Persistent link: https://www.econbiz.de/10013090246
The model derives risky corporate bond prices (or equivalently credit spreads) subject to credit default and migration risk, based on an extended version of the Jarrow, Lando and Turnbull model, under a risk-neutral framework, as a result of the simulation of a continuous time, time-homogeneous...
Persistent link: https://www.econbiz.de/10013067094
We develop a sufficient dimension reduction paradigm for inhomogeneous spatial point processes driven by a Gaussian random fields. Specifically, we introduce the notion of the kth-order Central Intensity Subspace. We show that a Central Subspace (Cook, 1998) can be defined as the combination of...
Persistent link: https://www.econbiz.de/10013153404
This paper estimates the stock market and its price dynamics in terms of the multifractional Brownian motion. In our analysis, we use the financial dataset of the Dow Jones Industrial Average (DJI) time series from March 2009 to June 2015. First, we briefly introduce the definitions and...
Persistent link: https://www.econbiz.de/10012840307
We define a non-parametric estimator of the integrated leverage effect as the covariance between the logarithmic asset price and its volatility. In Curato and Sanfelici (2015), a consistent estimator of the leverage effect has been introduced through a pre-estimate of the Fourier coefficients of...
Persistent link: https://www.econbiz.de/10012937229
The first ever explicit formulation of the concept of the option's probability density functions has been introduced in our publications “Breakthrough in Understanding Derivatives and Option Based Hedging - Marginal and Joint Probability Density Functions of Vanilla Options - True...
Persistent link: https://www.econbiz.de/10013022328
We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the optimal decision functions in the corresponding dynamic...
Persistent link: https://www.econbiz.de/10013078765