In this paper, the authors combine MS dynamic copulas with the skewed t SV model to study the optimal hedge ratios of portfolios.
SocGen quants calibrate local stochastic volatility models with stochastic dividends
An easy to calibrate and accurate swap market model is proposed
In this paper, the authors develop a procedure to reduce the variance when numerically computing the Greeks obtained via Malliavin calculus for jump–diffusion models with stochastic volatility.
Hybrid finite-difference/pseudospectral methods for the Heston and Heston–Hull–White partial differential equations
In this paper, the authors propose a hybrid spatial finite-difference/pseudospectral discretization for European option-pricing problems under the Heston and Heston–Hull–White models.
UBS quants show prices can differ by up to 25 correlation points if products modelled accurately
A correlation structure is an important element in pricing products such as correlation swaps
Fiorin, Callegaro and Grasselli show how discretisation methods reduce computing time in high-dimensional problems
In this paper, the authors study a hybrid tree/finite-difference method, which allows us to obtain efficient and accurate European and American option prices in the Heston–Hull– White and Heston–Hull–White2d models.
De Marco and Henry-Labordère provide an approximation of American options in terms of the local volatility function
Lorenzo Bergomi exposes a condition important to the use of LSV models in trading
This paper consists of a “horse race” study comparing (i) a number of option pricing models, and (ii) roll-over estimation procedures.
Austing and Li provide a continuous barrier options pricing formula that fits the volatility smile
Serguei Mechkov initialises Heston model’s parameters using probability distributions
This paper applies a variety of second-order finite difference schemes to the SABR arbitrage-free density problem and explores alternative formulations.
A mixed Monte Carlo and partial differential equation variance reduction method for foreign exchange options under the Heston–Cox–Ingersoll–Ross model
The paper concerns a hybrid pricing method build upon a combination of Monte Carlo and PDE approach for FX options under the four-factor Heston-CIR model.
The Authors introduce a closed-form approximation for the forward implied volatilities.
Numerical solution of the Hamilton-Jacobi-Bellman formulation for continuous-time mean-variance asset allocation under stochastic volatility
The paper deals with robust and accurate numerical solution methods for the nonlinear Hamilton–Jacobi–Bellman partial differential equation (PDE), which describes the dynamic optimal portfolio selection problem.
In this paper the authors provide a comprehensive treatment of the discretization effect under general stochastic volatility dynamics.
Accelerated trinomial trees applied to American basket options and American options under the Bates model
This paper introduces accelerated trinomial trees, a novel efficient lattice method for the numerical pricing of derivative securities.
In this paper the use of B-splines is advocated for volatility modeling within the calibration of stochastic local volatility (SLV) models and for the parameterization of an arbitrage-free implied volatility surface calibrated to sparse option data.
Lorenzo Ravagli shows how to exploit a risk premium embedded in the vol of vol in out-of-the-money options
By means of B-spline interpolation, this paper provides an accurate closed-form representation of the option price under an inverse Fourier transform.
Marzio Sala and Vincent Thiery show the derivation of the continuous adjoint problem for PDEs