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A Local Volatility Model to Price and Calibrate Year-on-Year and Zero-Coupon Inflation Options
Ribeiro, Diana - 2013
-coupon inflation options. This model provides an exact fit to year-on-year implied volatilities and to year-on-year forward convexity … model primitive is the year-on-year inflation ratio, which follows an exponential mean reverting process. The pricing of … ensures that the model hits the market inflation index forward curve. The model is then extended to price and calibrate zero …
Persistent link: https://www.econbiz.de/10013079397
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Extracting implicit density functions from short term interest rate options
Nielsen, Hannah - 2001
Using option prices the expectations of the market participants concerning the underlying asset can be extracted as well as the uncertainty surrounding these expectations. In this paper a mixture of lognormal density functions will be assumed to analyze options on three-month Euribor futures for...
Persistent link: https://www.econbiz.de/10009614294
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What option prices tell us about the ECB's unconventional monetary policies
Olijslagers, Stan; Petersen, Annelie; Vette, Nander de; … - 2018
We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several...
Persistent link: https://www.econbiz.de/10011940034
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The Probability Density Function of Interest Rates Implied in the Price of Options
Fornari, Fabio; Violi, Roberto - 2006
The paper contributes to the stochastic volatility literature by developing simulation schemes for the conditional distributions of the price of long term bonds and their variability based on non-standard distributional assumptions and volatility concepts; itillustrates the potential value of...
Persistent link: https://www.econbiz.de/10014058544
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Principal Measures of Investment Risk : The Price Density Function - A Tool for Finding Volatility, Sensitivity, Duration, Convexity
Mangoro, Tinashe - 2013
This essay explores the link between the exponential probability density function and the present value function coupled with moment theory to derive important non probabilistic parameters from the Present value function in which are then used to derive a measure of the volatility of interest...
Persistent link: https://www.econbiz.de/10013095900
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An overreaction implementation of the coherent market hypothesis and option pricing
Schöbel, Rainer (contributor); Veith, Jochen (contributor) - 2006
Inspired by the theory of social imitation (Weidlich 1970) and its adaptation to financial markets by the Coherent Market Hypothesis (Vaga 1990), we present a behavioral model of stock prices that supports the overreaction hypothesis. Using our dynamic stock price model, we develop a two factor...
Persistent link: https://www.econbiz.de/10003636657
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Numerics of implied binomial trees
Härdle, Wolfgang (contributor);  … - 2008
Market option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility known as "volatility smile". They provide a discrete...
Persistent link: https://www.econbiz.de/10003727608
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Calibration design of implied volatility surfaces
Detlefsen, Kai (contributor); Härdle, Wolfgang (contributor) - 2006
The calibration of option pricing models leads to the minimization of an error functional. We show that its usual specification as a root mean squared error implies fluctuating exotics prices and possibly wrong prices. We propose a simple and natural method to overcome these problems, illustrate...
Persistent link: https://www.econbiz.de/10003324186
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FX smile in the Heston model
Janek, Agnieszka; Kluge, Tino; Weron, Rafał; Wystup, Uwe - 2010
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 a fast and easily implemented semi-analytical...
Persistent link: https://www.econbiz.de/10008663372
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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