Using the Tsay (1988) outlier identification methodology on daily log-returns of 16 commodity spot price series and 25 commodity index series, this study assesses the impact significant and unexpected news announcements had on volatility between January 1, 1997 and December 31, 2007. Results...

We perform a historical analysis of selected rough volatility models to the SPX market. Tailoring the neural network pricing method of [27] to our needs, we train neural networks for the rough Heston model from [14], the rough Bergomi model from [4] as well as an extended version of the latter....

We study the mass at the origin in the uncorrelated SABR stochastic volatility model, and derive several tractable expressions, in particular when time becomes small or large. As an application -- in fact the original motivation for this paper -- we derive small-strike expansions for the implied...

We suggest a new way of setting up multifactor models with hidden variables. We claim that the standard initial condition, which assigns some fixed value to the stochastic volatility subprocess, is illogical and greatly underestimates the effect of the hidden variable. For instance, a stochastic...

In this paper we examine the Heston model in the limit of infinitely fast mean-reversion for the stochastic volatility process (CIR). We show that, under an appropriate scaling of the model parameters, the two-factor stochastic volatility Heston model can be exactly mapped to a one-factor...

Estimating volatility from recent high frequency data, we revisit the question of the smoothness of the volatility process. Our main result is that log-volatility behaves essentially as a fractional Brownian motion with Hurst exponent H of order 0.1, at any reasonable time scale. This leads us...

We propose a new methodology for obtaining arbitrage free European option prices from a SABR-like parameterisation. The method consists of specifying the joint distribution of the volatility and underlying at a given expiry and requires the calculation of a simple one-dimensional numerical...

In econometrics, long memory models for variance modeling like FIGARCH or FIAPARCH are characterized by a Fractional Differencing term. In order to estimate and apply these models, the infinite MacLaurin expansion of the differencing term has to be truncated at a certain level. We transfer the...

In this paper, we present advanced analytical formulas for SABR model option pricing. The first technical result consists of a new exact formula for the zero correlation case. This closed form is a simple 2D integration of elementary functions, particularly attractive for numerical...

Stochastic volatility models are widely used in interest rate modeling to match the option smiles -- the two most popular are the Heston model and the SABR one. These have been incorporated into arbitrage-free term structure frameworks, Heston-LMM and SABR-LMM respectively.In this paper we...