Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
Volume 27, Number 4 (March 2024)
Editor's Letter
Christoph Reisinger
University of Oxford
It is my pleasure to bring to you this issues of The Journal of Computational Finance.
Our first paper, “A simple local correlation model” by Frank Koster, introduces a version of Reghai’s local-in-index correlation model for options on multivariate assets. By allowing dependence on the driving Brownian motions rather than the asset prices, this model achieves a good fit to the index smile, while a proposed Monte Carlo method using an expansion trick proves efficient in practice for pricing and hedging.
“An equity-implied rating model for unrated firms”, the issue’s second paper, puts forward a new approach by Mauricio Gonzalez and Rémy Estran for estimating ratings for unrated firms based on the linkage between a firm’s distance to default and information on rated firms in the same sector. The resulting machine learning model is shown to have good explanatory power for ratings and interest rates in benchmarking.
In the third paper in this issue, “A multidimensional transform for pricing American options under stochastic volatility models”, Natalia Beliaeva, Ye Chen, Sanjay Nawalkha, Michael Sullivan and Sami Zreik construct path-independent lattices for pricing American options with stochastic volatility. They highlight that the transform-based approach and lattice models are computationally efficient and accurate and can be applied to several of the classical stochastic volatility models.
This year’s International Conference on Computational Finance in Amsterdam, organized by this journal’s erstwhile editor Kees Oosterlee, saw stimulating keynote lectures by several of our contributors, including Christian Bayer, Peter Forsyth, Lech Grzelak and A´ lvaro Leitao Rodr´ıguez, as well as parallel sessions on a wide range of interesting topics and a thought-provoking industry panel discussion. The major conference season continues in July with the World Congress of the Bachelier Finance Society in Rio de Janeiro, where our associate editors Christa Cuchiero and Mike Ludkovski will deliver plenary lectures.
n the meantime, I trust you will find the new developments presented in this issue of interest.
Papers in this issue
A simple local correlation model
This paper puts forward a novel kind of "local-in-index" model which allows easier computation of Greeks.
An equity-implied rating model for unrated firms
The authors use Merton's distance to default as the basis for new model with which to assign credit ratings to firms which are not traditionally rated.
A multidimensional transform for pricing American options under stochastic volatility models
The authors put forward a transform-based method for pricing American options which is computationally efficient and accurate under under low-dimensional stochastic volatility models.
