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A Note on the Option Price and 'Mass at Zero in the Uncorrelated SABR Model and Implied Volatility Asymptotics'

Choi, Jaehyuk; Wu, Lixin - 2021

Gulisashvili et al. [Quant. Finance, 2018, 18(10), 1753-1765] provide a small-time asymptotics for the mass at zero under the uncorrelated stochastic-alpha-beta-rho (SABR) model by approximating the integrated variance with a moment-matched lognormal distribution. We improve the accuracy of the...

Persistent link: https://www.econbiz.de/10013231397

An Orthogonal Series Expansions Method to Hedge and Price European-Type Options

Chan, Ron - 2017

Closed-form pricing formulae and option Greeks are obtained for European-type options using an orthogonal polynomial series -- complex Fourier series. We assume that risky assets are driven by exponential Lévy processes and stochastic volatility models. We provide a succinct error analysis to...

Persistent link: https://www.econbiz.de/10012967806

Fourier Transform Algorithms for Pricing and Hedging Discretely Sampled Exotic Variance Products and Volatility Derivatives under Additive Processes

Zheng, Wendong - 2013

We develop efficient fast Fourier transform algorithms for pricing and hedging discretely sampled variance products and …

Persistent link: https://www.econbiz.de/10013089214

Hedging Futures Options with Stochastic Interest Rates

Cheng, Benjamin - 2016

hedging instruments match the maturity of the option, forward contracts and futures contracts can hedge both the market risk … and the interest rate risk of the options positions. When the hedge is rolled forward with shorter maturity hedging …This paper presents a simulation study of hedging long-dated futures options, in the Rabinovitch (1989) model which …

Persistent link: https://www.econbiz.de/10012982917

An Investigation of Model Risk in a Market with Jumps and Stochastic Volatility

Coqueret, Guillaume - 2016

The aim of this paper is to investigate model risk aspects of variance swaps and forward start options in a realistic … is accounted for. Then, we consider the model risk of forward-start options and we show how this risk can be reduced by …-start options can be valued by means of analytic methods. We measure model risk using a set of 21 models representing various …

Persistent link: https://www.econbiz.de/10013006121

XVA of a Derivative on an Underlying Modelled by a Default Jump Process with an Analysis of CVA Wrong Way Risk for Bond Forwards

Lichtner, Mark - 2015

We consider the valuation and risk management of derivatives on defaultable assets such as bonds taking into account …

Persistent link: https://www.econbiz.de/10013024060

Exotic Derivatives under Stochastic Volatility Models with Jumps

Mijatovic, Aleksandar - 2010

In equity and foreign exchange markets the risk-neutral dynamics of the underlying asset are commonly represented by …

Persistent link: https://www.econbiz.de/10013149810

Pricing of Derivatives with Stochastically Correlated Underlyings

Büchler, Matthias - 2014

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

Pricing Forward Skew Dependent Derivatives : Multifactor Versus Single-Factor Stochastic Volatility Models

Marabel Romo, Jacinto - 2014

Empirical evidence shows that, in equity options markets, the slope of the skew is largely independent of the 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...

Persistent link: https://www.econbiz.de/10013064470

Evaluation of options using the Black-Scholes methodology

Brătian, Vasile - In: Expert journal of economics 7 (2019) 2, pp. 59-65

This paper discusses how to obtain the Black-Scholes equation to evaluate options and how to obtain explicit solutions for Call and Put. The Black-Scholes equation, which is the basis for determining explicit solutions for Call and Put, is a rather sophisticated equation. It is a partial...

Persistent link: https://www.econbiz.de/10012131594