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Regime-Dependent Smile-Adjusted Delta Hedging

Alexander, Carol; Rubinov, Alexander; Kalepky, Markus; … - Henley Business School, University of Reading - 2010

consistently and significantly improve on implied BSM delta hedging, for options of all moneyness and maturities and whether … rebalancing is daily, weekly or fortnightly. For most options and over all hedging horizons the regime-dependent smile …Most research on option hedging has compared the performance of delta hedges derived from different stochastic …

Persistent link: https://www.econbiz.de/10011206320

Markov Switching GARCH Diffusion

Alexander, Carol; Lazar, Emese - Henley Business School, University of Reading - 2008

GARCH option pricing models have the advantage of a well-established econometric foundation. However, multiple states need to be introduced as single state GARCH and even Levy processes are unable to explain the term structure of the moments of financial data. We show that the continuous time...

Persistent link: https://www.econbiz.de/10008542351

The 4/2 Stochastic Volatility Model

Grasselli, Martino - 2016

We introduce a new stochastic volatility model that includes, as special instances, the Heston (1993) and the 3/2 model of Heston (1997) and Platen (1997). Our model exhibits important features: first, instantaneous volatility can be uniformly bounded away from zero, and second, our model is...

Persistent link: https://www.econbiz.de/10013005668

Stochastic Skew and Target Volatility Options

Grasselli, Martino - 2015

Target volatility options (TVO) are a new class of derivatives whose payoff depends on some measure of volatility …. These options allow investors to take a joint exposure to the evolution of the underlying asset, as well as to its realized … realized volatility of the underlying asset over the life of the option. In equity options markets the slope of the skew is …

Persistent link: https://www.econbiz.de/10013033877

Lie Symmetry Methods for Local Volatility Models

Craddock, Mark - 2016

We investigate PDEs of the form u_t = 1/2 σ^2 (t, x)u_{xx} − g(x)u which are associated with the calculation of expectations for a large class of local volatility models. We find nontrivial symmetry groups that can be used to obtain standard integral transforms of fundamental solutions of the...

Persistent link: https://www.econbiz.de/10012983542

An Affine Multi-Currency Model with Stochastic Volatility and Stochastic Interest Rates

Gnoatto, Alessandro - 2014

takes into account the smile in the FX market and the evolution of yield curves. The pricing of vanilla options on FX rates …

Persistent link: https://www.econbiz.de/10013064455

Smiles All Around : FX Joint Calibration in a Multi-Heston Model

De Col, Alvise - 2014

We introduce a novel multi-factor Heston-based stochastic volatility model, which is able to reproduce consistently typical multi-dimensional FX vanilla markets, while retaining the (semi)-analytical tractability typical of affine models and relying on a reasonable number of parameters. A...

Persistent link: https://www.econbiz.de/10013066899

A General Framework for a Joint Calibration of VIX and VXX Options

Grasselli, Martino; Mazzoran, Andrea; Pallavicini, Andrea - 2021

options both on VIX futures and VXXnotes, thus going beyond the failure of purely stochastic or simply local volatilitymodels …

Persistent link: https://www.econbiz.de/10013242324

Riding on the Smiles

Da Fonseca, José - 2011

Using a data set of vanilla options on the major indexes we investigate the calibration properties of several … Fonseca et al. (2007b), which provides a natural framework for pricing basket options while keeping the stylized smile … basket options …

Persistent link: https://www.econbiz.de/10013133070

Hedging (co)variance risk with variance swaps

Fonseca, José da; Grasselli, Martino; Ielpo, Florian - In: International journal of theoretical and applied finance 14 (2011) 6, pp. 899-943

Persistent link: https://www.econbiz.de/10009380996