Technical paper/Local volatility models
Quantized calibration in local volatility
Quantization is applied to price vanilla and barrier options
Cutting edge intro: history in the modelling
Bloomberg quant Guyon delivers an alternative to stochastic local volatility
Path-dependent volatility
Julien Guyon on path-dependent volatility models
Cutting Edge 2013: fixing SABR
Fixing SABR
A quadratic volatility Cheyette model
A quadratic volatility Cheyette model
SABR goes normal
SABR goes normal
Cutting Edge introduction: Goodwill for DVA
Goodwill blunting
Rational shapes of local volatility
Rational shapes of local volatility
Expanded forward volatility
Expanded forward volatility
The beta stochastic volatility model
The beta stochastic volatility model
Being particular about calibration
Following previous work on the calibration of multi-factor local stochastic volatility models to market smiles, Julien Guyon and Pierre Henry-Labordère show how to calibrate exactly any such model. Their approach, based on McKean’s particle method,…
Filling the gaps
Filling the gaps
From spot volatilities to implied volatilities
From spot volatilities to implied volatilities
From spot volatilities to implied volatilities
From spot volatilities to implied volatilities
Volatility interpolation
Volatility interpolation
Smiling jumps
Smiling jumps
Breaking correlation breaks
Breaking correlation breaks
Expanded smiles
Implementing models with stochastic as well as deterministic local volatility can be challenging. Here, Jesper Andreasen and Brian Huge describe an expansion approach for such models that avoids the high-dimensional partial differential equations usually…
A dynamic model for correlation
Equity markets have experienced a significant increase in correlation during the crisis, resulting in exotic derivatives portfolios realising large losses. As larger correlations in downward scenarios are already implied in the index option market in the…
Calibrating and pricing with local volatility models
Cutting edge - Option pricing
Calibrating and pricing with embedded local volatility models
Consistently fitting vanilla option surfaces when pricing volatility derivatives such as Vix options or interest rate/equity hybrids is an important issue. Here, Yong Ren, Dilip Madan and Michael Qian Qian show how this can be accomplished, using a…
Smile dynamics II
In an article published in Risk in September 2004, Lorenzo Bergomi highlighted how traditionalstochastic volatility and jump/Lévy models impose structural constraints on the relationshipbetween the forward skew, the spot/volatility correlation and the…