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This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.
Persistent link: https://www.econbiz.de/10010293486
This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.
Persistent link: https://www.econbiz.de/10010298306
In this note we provide an alternative proof that the Heston asset price process converges to the Normal Inverse Gaussian (NIG) distribution in the large-time limit in a certain sense. Our proof, which is based on the convergence of conditional time-integrated variance to the Inverse Gaussian...
Persistent link: https://www.econbiz.de/10014193143
We introduce a new stochastic volatility model that includes, as special instances, the Heston (1993) and the 3/2 model of Heston (1997) and Platen (1997). Our model exhibits important features: first, instantaneous volatility can be uniformly bounded away from zero, and second, our model is...
Persistent link: https://www.econbiz.de/10013005668
This thesis presents our study on using the hybrid stochastic-local volatility model for option pricing. Many researchers have demonstrated that stochastic volatility models cannot capture the whole volatility surface accurately, although the model parameters have been calibrated to replicate...
Persistent link: https://www.econbiz.de/10013006700
Phase-type distribution has been one of the most important probabilistic tools in the analysis of complex stochastic system evolution. However, in their empirical study, Frydman (2005) and Frydman and Schuermann (2008) found that the inclusion of available credit rating information helps improve...
Persistent link: https://www.econbiz.de/10012965202
We establish an explicit pricing formula for a class of non-gaussian models (the Lévy-stable, or Log-Lévy model with finite moments) allowing a straightforward evaluation of an European option, without numerical simulations and with as much accuracy as one wishes. The formula can be used by...
Persistent link: https://www.econbiz.de/10012968356
We revisit the question whether commodities should be included in investors' portfolios. We employ for the first time a stochastic dominance efficiency (SDE) approach to construct optimal portfolios with and without commodities and we evaluate their comparative performance. SDE circumvents the...
Persistent link: https://www.econbiz.de/10012970724
The purpose of this research is the realistic forecast of volatility in frame of a risk parity class of strategies. The custom rescaling of volatility – naïve risk parity - doesn't consider market inefficiencies which correspond to cyclical patterns like crisis and the following recovery. The...
Persistent link: https://www.econbiz.de/10012955396
In this paper we examine the Heston model in the limit of infinitely fast mean-reversion for the stochastic volatility process (CIR). We show that, under an appropriate scaling of the model parameters, the two-factor stochastic volatility Heston model can be exactly mapped to a one-factor...
Persistent link: https://www.econbiz.de/10013033884