Analytical Pricing of Swaption in Affine Term Structures with Stochastic Volatility

2010 ◽  
Author(s):  
Massoud Heidari ◽  
Ali Hirsa ◽  
Dilip B. Madan
Keyword(s):  
Stochastic Volatility ◽  
Term Structures

WORST-OF OPTIONS AND CORRELATION SKEW UNDER A STOCHASTIC CORRELATION FRAMEWORK

2012 ◽  
Vol 15 (07) ◽  
pp. 1250051 ◽  
Author(s):  
JACINTO MARABEL ROMO
Keyword(s):  
Closed Form ◽  
Stochastic Volatility ◽  
Term Structure ◽  
Stochastic Volatility Model ◽  
Closed Form Solutions ◽  
Stochastic Correlation ◽  
Term Structures ◽  
Volatility Model ◽  
Wide Range ◽  
Correlation Term

This article considers a multi-asset model based on Wishart processes that accounts for stochastic volatility and for stochastic correlations between the underlying assets, as well as between their volatilities. The model accounts for the 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 the model is that it is analytically tractable and, hence, it is possible to obtain semi-closed-form solutions for the prices of plain vanilla options, as well as for the price of exotic derivatives. In this sense, this article develops semi-closed-form formulas for the price of European worst-of options with barriers and/or forward-start features. To motivate the introduction of the Wishart volatility model, the article compares the prices obtained under this model and under a multi-asset stochastic volatility model with constant instantaneous correlations. The results reveal the existence of a stochastic correlation premium and show that the consideration of stochastic correlation is a key element for the valuation of these structures.

Pricing of Swaptions in Affine Term Structures with Stochastic Volatility

2007 ◽  
pp. 173-193 ◽  
Author(s):  
Michael Heidari ◽  
Alil Hirsa ◽  
Dilip B. Madan
Keyword(s):  
Stochastic Volatility ◽  
Term Structures

Extensions

2013 ◽  
Author(s):  
Francis X. Diebold ◽  
Glenn D. Rudebusch
Keyword(s):  
Bayesian Analysis ◽  
Stochastic Volatility ◽  
Research Program ◽  
Functional Form ◽  
Credit Spreads ◽  
Bond Yields ◽  
Ongoing Research ◽  
Factor Loadings ◽  
Term Structures ◽  
Macroeconomic Fundamentals

This chapter highlights aspects of the vibrant ongoing research program associated with the ideas developed in earlier chapters. It begins with a collage-style sketch of work involving Bayesian analysis, functional form for factor loadings, term structures of credit spreads, and nonlinearities. It then discusses in greater detail the incorporation of more than three yield factors. Next, it treats stochastic volatility in both dynamic Nelson–Siegel model (DNS) and arbitrage-free DNS (AFNS) environments, with some attention to the issue of unspanned stochastic volatility. Finally, it discusses the incorporation of macroeconomic fundamentals in their relation to bond yields. It also introduces aspects of modeling real versus nominal yields in DNS/AFNS environments, a theme treated in detail in Chapter 5.

FUZZY UNCERTAINTY IN THE HESTON STOCHASTIC VOLATILITY MODEL

2011 ◽  
Vol 16 (02) ◽  
Author(s):  
G. Figà-Talamanca ◽  
M. L. Guerra ◽  
L. Stefanini
Keyword(s):  
Stochastic Volatility ◽  
Stochastic Volatility Model ◽  
Fuzzy Uncertainty ◽  
Volatility Model

Portfolio losses in factor models: term structures and intertemporal loss dependence

2006 ◽  
Vol 2 (4) ◽  
pp. 3-31 ◽  
Author(s):  
Leif Andersen
Keyword(s):  
Factor Models ◽  
Term Structures

Introducing two mixing fractions to a lognormal local-stochastic volatility model

2020 ◽  
Author(s):  
Bowie Owens ◽  
Zili Zhu ◽  
Geoffrey Lee
Keyword(s):  
Stochastic Volatility ◽  
Stochastic Volatility Model ◽  
Volatility Model

An adaptive Filon quadrature for stochastic volatility models

2018 ◽  
Vol 22 (3) ◽  
pp. 65-88 ◽  
Author(s):  
Fabien Le Floc'h
Keyword(s):  
Stochastic Volatility ◽  
Stochastic Volatility Models ◽  
Volatility Models

A non-Gaussian stochastic volatility model

1998 ◽  
Vol 2 (2) ◽  
pp. 33-47 ◽  
Author(s):  
Yuichi Nagahara ◽  
Genshiro Kitagawa
Keyword(s):  
Stochastic Volatility ◽  
Stochastic Volatility Model ◽  
Volatility Model ◽  
Non Gaussian

A Taylor series approach to pricing and implied volatility for local–stochastic volatility models

2014 ◽  
Vol 17 (2) ◽  
pp. 3-19 ◽  
Author(s):  
Matthew Lorig ◽  
Stefano Pagliarani ◽  
Andrea Pascucci
Keyword(s):  
Stochastic Volatility ◽  
Taylor Series ◽  
Implied Volatility ◽  
Stochastic Volatility Models ◽  
Volatility Models
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