The step stochastic volatility model

Extreme short-dated skew can be obtained by decomposing it in two parts

CLICK HERE TO DOWNLOAD THE PDF

Peter Friz, Paolo Pigato and Jonathan Seibel propose a modification of a given stochastic volatility model ‘backbone’ capable of producing extreme short-dated implied skews, without adding jumps or non-Markovian ‘rough’ fractional volatility dynamics. A decomposition formula for the implied skew of a local stochastic volatility model suggests this can be achieved via a non-smooth leverage function, such as a step function. The resulting step stochastic volatility

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: