Local volatility model is a relatively simple way to capture volatility skew/smile. In spite of its drawbacks, it remains popular among practitioners for derivative pricing and hedging. For long-dated options or interest rate/equity hybrid products, in order to take into account the effect of...

Implied volatility skew and smile are ubiquitous phenomena in the financial derivative market especially after the Black Monday 1987 crash. Various stochastic volatility models have been proposed to capture volatility skew and smile in derivative pricing and hedging. Almost 30 years after the...

Inflation derivatives have been widely used by various institutions to transfer or hedge inflation risks. They have experienced substantial growth since early 2000s and a liquid market has been developing in both Europe and U.S. In order to price inflation derivatives, calculate their risks or...