As a result, the Bates model and other single factor stochastic volatility models fail to capture a large portion of the variation in the currency options data. In contrast, the two random clocks in our stochastic skew models generate not only stochastic volatility, but also the stochastic skew...
Carr, P., and L. Wu, 2007, Stochastic skew in currency options, Journal of Finan- cial Economics 86, 213-247.Carr, P., Wu, L., 2007. Stochastic skew in currency options. Journal of Financial Economics 86 (1), 213-247.Stochastic skew in currency options - Carr, Wu, et al. () ...
INTRODUCTION TO PRDC SWAPS 28 described earlier, are particularly sensitive to the FX volatility skew, due to the...Alexander van Haastrecht,Antoon Pelsser.Generic pricing of FX, inflation and stock options under stochastic interest rates and stochastic volatility[J]. Quantitative Finance .2011(5)...
For the market data, we choose Put-options on the Nikk300 index on December 31, 2012, which is representative for the skew and patterns observed. Since our aim is a comparison of our models to the pure Heston model [14] and the double Heston model [6], we thus just use the standard...
They derived an analytical formula for the variance strike in the presence of a volatility skew. Brockhaus and Long [3] provided an analytical approximation for the pricing of volatility swaps. Jarrow et al. [4] discussed the valuation of volatility swaps in the GARCH(1,1) stochastic ...
Bakshi, G., P. Carr, and L. Wu (2008): "Stochastic Risk Premiums, Stochastic Skew- ness in Currency Options, and Stochastic Discount Factors in International Economies," Journal of Financial Economics, 87, 132-156.Bakshi, Gurdip, Peter Carr, and Liuren Wu, 2008, Stochastic risk premiums,...
The market pricing of OTC FX options displays both stochastic volatility and stochastic skewness in the risk-neutral distribution governing currency returns. To capture this unique phenomenon, P.Carr and L.Wu developed a so-called stochastic-skew model (SSM) with three dynamical state variables that...
The implied volatility smile/skew in FX options market is very significant, thus stochastic volatility is necessary in FX options models. Combining the three factors together, a new model named logarithmic mean-reversion jump-diffusion model with stochastic volatility is constructed. Conditional ...
1993. A Closed-Form Solution for options with Stochastic Volatility with Applications to Bond and Currency Options. The Review of Financial Studies 6: 327–43. [Google Scholar] [CrossRef] Kahl, Christian, and Peter Jäckel. 2005. Not-so-complex Logarithms in the Heston Model. Wilmott ...