We introduce a stochastic volatility model with self-exciting jump intensity to capture the change in pricing dynamic …

We employ a refined tree method to value employee stock options (ESOs) in the stochastic volatility model of Heston … valuation, personal market beliefs and stochastic volatility. We formulate theoretical results on ESO valuation independently of …

This article postulates a flexible specification for the implied volatility surface, which accounts for the existence … of volatility skew and term structure. I show that it is possible to express the local volatility function in terms of … the implied volatility. I then obtain an analytic formula for the local volatility function. The resulting local …

corresponding to the local volatility model that allows pricing quanto derivatives consistently with the observed market equity skew … volatility model to market data and then comparing the prices of European quanto euro derivatives on the Nikkei 225 index with … significant pricing errors when compared with the local volatility model.I also compare the pricing performance of the local …

Heterogeneity in beliefs and time preferences among investors make stock volatility stochastic, even though the … volatility of the underlying dividend is constant. The prices of the European options written on this stock admit closed …-form solutions, hence their hedging deltas. The Black-Scholes implied volatility surface, which depends on wealth distribution …

volatility level. Single-factor stochastic volatility models are not flexible enough to account for the stochastic behavior of … the skew. On the other hand, multifactor stochastic volatility models are able to account for the existence of stochastic … that the consideration of additional volatility factors in the context of stochastic volatility models allows us to …

volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM), and can be tracked using … density on volatility. Our analysis relies on a specification of the martingale change of measure, which we will refer to as … separability. This specification has a multiplicative component that behaves like a risk premium on volatility-uncertainty in the …

Volatility products have become popular in the past 15 years as a hedge against market uncertainty. In particular …, there is growing interest in options on the VIX volatility index. A number of recent empirical studies examine whether there … proposing and analyzing a stochastic volatility model with regime switching. The basic Heston model cannot capture VIX implied …

contingent claims. Our method is applicable to widely used option pricing models such as local volatility models, stochastic … volatility models, and their combinations. This method is useful in practice since the resulting approximation formula is not … approximation remains quite high even for the long maturity and/or the high volatility cases, which is a desired feature. As an …