In this paper we propose an efficient Monte Carlo scheme for simulating the stochastic volatility model of Heston (1993) enhanced by a nonparametric local volatility component. This hybrid model combines the main advantages of the Heston model and the local volatility model introduced by Dupire...

We construct multi-currency models with stochastic volatility (SV) and correlated stochastic interest rates with a full matrix of correlations. We first deal with a foreign exchange (FX) model of Heston-type, in which the domestic and foreign interest rates are generated by the short-rate...

We present an extension of stochastic volatility equity models by a stochastic Hull--White interest rate component while assuming non-zero correlations between the underlying processes. We place these systems of stochastic differential equations in the class of affine jump-diffusion--linear...

We consider a Heston type inflation model in combination with a Hull–White model for nominal and real interest rates, in which all the correlations can be non-zero. Due to the presence of the Heston dynamics our derived inflation model is able to capture the implied volatility skew/smile,...

We present in a Monte Carlo simulation framework a novel approach for the evaluation of hybrid local volatility (Dupire 1994, Derman and Kani 1998) models. In particular, we consider the stochastic local volatility model - see e.g. Lipton et al. (2014), Piterbarg (2007), Tataru and Fisher...

We present a framework for efficient calibration of the time-dependent SABR model in an FX context. In a similar fashion as in Piterbarg (2005) we derive effective parameters, which yield an accurate and efficient calibration. On top of the calibrated FX-SABR model we add a non-parametric local...