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Recent empirical studies report predictable dynamics in the volatility surfaces implied by observed index option prices …
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This paper examines the cross-dynamics of volatility term structures implied by foreign exchange options. The data used … common factors can explain a vast proportion of the variation in volatility term structures across currencies. Furthermore …, the results indicate that the euro is the dominant currency, as the implied volatility term structure of the euro is found …
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We study the impact of the FX skew on quanto convexity adjustments. Using a double shifted lognormal model allows an easy calibration to the skews as well as expressing the FX skew impact analytically for quanto forwards. We conclude that under non stressed market conditions (σ^2 T≪1) the...
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This paper presents a new modeling approach for credit quanto spreads, covering credit default swap quanto spreads, bond quanto spreads and bond redenomination spreads. Credit quanto spreads are implied from a hazard rate diffusion model and a FX rate jump diffusion model, where the jumps are...
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