Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
Multicurrency extension of the quasi-Gaussian stochastic volatility interest rate model
Leslie Ng
Abstract
ABSTRACT
In this paper, we develop a multicurrency extension of the quasi-Gaussian stochastic volatility interest rate model described by Andreasen and Andersen and Piterbarg.We model foreign exchange dynamics using a Heston-type stochastic volatility process with a constant elasticity of variance local volatility component. An approximation is presented for European foreign exchange options, and various issues relating to correlations and model calibration are discussed.
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