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There are numerous models for specifying the uncertainty of future instantaneous volatility or variance, including the Heston, SABR and ZABR models. Often it is observed that a specific stochastic volatility model is chosen not for particular dynamical features, relevant for exotic payoff...
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We present an algorithm to approximate moments for forward rates under a displaced lognormal forward-LIBOR model (DLFM). Since the joint distribution of rates is unknown, we use a multi-dimensional full weak order 2.0 Ito-Taylor expansion in combination with a second-order Delta method. This...
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Recursive Marginal Quantization (RMQ) allows fast approximation of solutions to stochastic differential equations in one-dimension. When applied to two factor models, RMQ is inefficient due to the fact that the optimization problem is usually performed using stochastic methods, e.g., Lloyd's...
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