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We construct multi-currency models with stochastic volatility and correlated stochastic interest rates with a full … interest rate by a stochastic volatility displaced-diffusion Libor Market Model [AA02], which can model an interest rate smile …
Persistent link: https://www.econbiz.de/10013069789
correlation between the underlying assets and are usually priced assuming constant instantaneous correlations.This article … considers a multi-asset model based on Wishart processes that accounts for stochastic volatility and for stochastic correlations … depends crucially on the term structure of the correlation corresponding to the assets returns. Furthermore, the comparison of …
Persistent link: https://www.econbiz.de/10013048541
smiles and correlation smiles. At first sight, the task seems formidable. However, by reformulating the problem, we can …
Persistent link: https://www.econbiz.de/10013297391
This article considers a multi-asset model based on Wishart processes that accounts for stochastic volatility and for … existence of correlation term structure and correlation skew. The article shows that the Wishart specification can generate … different patterns corresponding to the correlation skew for a wide range of correlation term structures.Another advantage of …
Persistent link: https://www.econbiz.de/10013091068
We price derivatives defined for different asset classes with a full stochastic dependence structure. We consider jointly geometric Brownian motions and mean-reversion processes with a a stochastic variance-covariance matrix driven by a Wishart process. These models cannot be treated within the...
Persistent link: https://www.econbiz.de/10013063402
the required correlation between the Brownian motions and we show how to correct for this. Pairwise tests illustrate the …
Persistent link: https://www.econbiz.de/10014045768
patterns of implied volatility can actually be reproduced as a consequence of dynamical hedging. The simulations are performed … theoretical and quantitative point of view the strong pricing biases of the Black-Scholes formula, although stochastic volatility …
Persistent link: https://www.econbiz.de/10013084284
tractable. The approach allows for simultaneous calibration to market volatility surfaces of currency triangles, and also gives …
Persistent link: https://www.econbiz.de/10012963076
Implied volatility (IV) reflects both expected empirical volatility and also risk premia. Stochastic variation in … volatilities and correlations among daily IVs from options on 28 large cap stocks. The data strong support a general correlation …
Persistent link: https://www.econbiz.de/10013036733
this method to equity and index options shows that, while multivariate diffusion models with constant correlation fail to … correlation patterns compatible with observed prices of index options. Our method allows, as a by product, to quantify this model …
Persistent link: https://www.econbiz.de/10013144664