Stochastic volatility
The step stochastic volatility model
Extreme short-dated skew can be obtained by decomposing it in two parts
The CTMC–Heston model: calibration and exotic option pricing with SWIFT
This work presents an efficient computational framework for pricing a general class of exotic and vanilla options under a versatile stochastic volatility model.
Numerical techniques for the Heston collocated volatility model
In this paper, the authors discuss all aspects of derivative pricing under the Heston–CLV model: calibration with an efficient Fourier method; a Monte Carlo simulation with second-order convergence; and accurate partial differential equation pricing…
Introducing two mixing fractions to a lognormal local-stochastic volatility model
In this paper, the authors introduce two mixing fractions that can be controlled separately to apply impact to the volatility-of-volatility and the correlation in a lognormal LSV model.
Pricing multiple barrier derivatives under stochastic volatility
This work generalizes existing one- and two-dimensional pricing formulas with an equal number of barriers to a setting of n dimensions and up to two barriers in the presence of stochastic volatility.
Differential machine learning: the shape of things to come
A derivative pricing approximation method using neural networks and AAD speeds up calculations
A new arbitrage-free parametric volatility surface
A new arbitrage-free volatility surface with closed-form valuation and local volatility is introduced
High-order approximations to call option prices in the Heston model
In the present paper, a decomposition formula for the call price due to Alòs is transformed into a Taylor-type formula containing an infinite series with stochastic terms. The new decomposition may be considered as an alternative to the decomposition of…
Numerical simulation and applications of the convection–diffusion–reaction
This paper develops two local mesh-free methods for designing stencil weights and spatial discretization, respectively, for parabolic partial differential equations (PDEs) of convection–diffusion–reaction type.
The SABR forward smile
Thomas Roos presents the expressions for the implied volatilities of European and forward starting options
Hedging rate exotics, Bergomi-style
New paper by Nomura quant applies volatility model used in equities to exotic rate hedging
The swap market Bergomi model
The combination of two popular volatility models sharpens the hedging of exotic rate derivatives
Rising star in quant finance: Blanka Horvath, Aitor Muguruza and Mehdi Tomas
Risk Awards 2020: New machine learning techniques bring ‘rough volatility’ models to life
ADOL: Markovian approximation of a rough lognormal model
A variation of the rough volatility model is introduced by plugging in a different stochastic process
Nonparametric tests for jump detection via false discovery rate control: a Monte Carlo study
The main goal of this paper is to perform a comprehensive nonparametric jump detection model comparison and validation. To this end, the authors design an extensive Monte Carlo study to compare and validate these tests.
Application of the Heath–Platen estimator in the Fong–Vasicek short rate model
In this paper, the authors construct a Heath-Platen-type Monte Carlo estimator that performs extraordinarily well compared with the crude Monte Carlo estimation.
Roughening Heston
El Euch, Rosenbaum, Gatheral combine a rough volatility model with the classical Heston model
ε-monotone Fourier methods for optimal stochastic control in finance
In this paper, the authors give a preprocessing step for Fourier methods that involves projecting the Green’s function onto the set of linear basis functions.
An adaptive Filon quadrature for stochastic volatility models
In this paper, the author describes a simple adaptive Filon method that performs better and more accurately than various popular alternatives for pricing options under the Heston model.
The Garch linear SDE: explicit formulas and the pricing of a quanto CDS
A new closed-form approximation is applied to quanto CDS pricing
You don’t need to sacrifice accuracy for flexibility
BAML quant proposes option pricing model that softens conflict between the two properties
Podcast: Dominique Bang on his stochastic local vol model
New approach delivers quick and accurate computation of prices
Local stochastic volatility: shaken, not stirred
Dominique Bang introduces a novel LSV approach to term distribution modelling
The optimal investment problem in stochastic and local volatility models
This paper considers the classical optimal investment allocation problem of Merton through the lens of some more modern approaches, such as the stochastic volatility and local volatility models.