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Ground-breaking recent work by Carr and Lee extends well-known results for variance swaps to arbitrary functions of realized variance, provided a zero-correlation assumption is made. We give a detailed mathematical analysis of some of their computations and work out the cases of volatility swaps...
Persistent link: https://www.econbiz.de/10005462679
From an analysis of the time series of volatility using recent high frequency data, Gatheral, Jaisson and Rosenbaum previously showed that log-volatility behaves essentially as a fractional Brownian motion with Hurst exponent H of order 0.1, at any reasonable time scale. The resulting Rough...
Persistent link: https://www.econbiz.de/10013005384
This work is concerned with forest and cumulant type expansions of general random variables on a filtered probability spaces. We establish a “broken exponential martingale” expansion that generalizes and unifies the exponentiation result of Alòs, Gatheral, and Radoičić ́ (SSRN'17; [AGR20])...
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Cubature methods, a powerful alternative to Monte Carlo due to Kusuoka [<italic>Adv. Math. Econ</italic>., 2004, <bold>6</bold>, 69--83] and Lyons--Victoir [<italic>Proc. R. Soc. Lond. Ser. A</italic>, 2004, <bold>460</bold>, 169--198], involve the solution to numerous auxiliary ordinary differential equations (ODEs). With focus on the Ninomiya--Victoir...
Persistent link: https://www.econbiz.de/10010976291
We discuss the possibility of obtaining model-free bounds on volatility derivatives, given present market data in the form of a calibrated local volatility model. A counter-example to a wide-spread conjecture is given.
Persistent link: https://www.econbiz.de/10008542998
It is known that Heston's stochastic volatility model exhibits moment explosion, and that the critical moment s+ can be obtained by solving (numerically) a simple equation. This yields a leading-order expansion for the implied volatility at large strikes: σBS(k, T)2T ∼ Ψ(s+ - 1) × k (Roger...
Persistent link: https://www.econbiz.de/10009208214
Cubature methods, a powerful alternative to Monte Carlo due to Kusuoka~[Adv.~Math.~Econ.~6, 69--83, 2004] and Lyons--Victoir~[Proc.~R.~Soc.\\Lond.~Ser.~A 460, 169--198, 2004], involve the solution to numerous auxiliary ordinary differential equations. With focus on the Ninomiya-Victoir...
Persistent link: https://www.econbiz.de/10008680907