Podcast: Dominique Bang on his stochastic local vol model
New approach delivers quick and accurate computation of prices
Dominique Bang, head of interest rate vanilla analytics at Bank of America Merrill Lynch in London, joined us in our studio to talk about his work on a local stochastic volatility model.
In his article on this topic, Local stochastic volatility: shaken, not stirred, available now on Risk.net, Bang introduces a new European options model, where he mixes a pure stochastic volatility process with a local volatility process. It is arbitrage-free, handles non-positive interest rates, is quick to compute and allows for accurate calibration of constant maturity swaps and swaptions.
While the model’s performance is highlighted in the article with reference to the popular stochastic alpha beta rho model (SABR), it is applicable to a number of volatility models, including the Heston model.
Index
00:00 Intro
00:58 The paper
02:30 Lamperti’s transform
03:55 Shaken, not stirred
05:08 Advantages of the new approach
06:35 Applicability
07:45 SABR example
10:05 Computational speed
12:22 Intuition and tractability
To hear the full interview, listen in the player above, or download. Future podcasts in our Quantcast series will be uploaded to Risk.net. You can also visit the main page here to access all tracks, or go to the iTunes store or Google Podcasts to listen and subscribe.
More on Comment
Most read on Risk.net
- Asia moves: BlackRock picks new Asia head, Credit Suisse boosts regional solutions, and more
- We need a different approach to supervisory stress-testing
- Bank risk manager of the year: UBS
- People moves: Asia hires at Credit Suisse, new UBS data role, NatWest takes UBS's Duclos, and more
- Risk solutions house of the year: HSBC