A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
Extends Heston model with local volatility for better fit to market volatilities.
We consider an asset whose risk-neutral dynamics are described by a general class of local-stochastic volatility models and derive a family of asymptotic expansions for European-style option prices and implied volatilities. Our implied volatility expansions are explicit; they do not require any special functions nor do…
Study local volatility from rough volatility models, finding new skew rule.
We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and obtain several results that can be used for the calibration of this local volatility…
In this paper, we study the price of Variable Annuity Guarantees, especially of Guaranteed Annuity Options (GAO) and Guaranteed Minimum Income Benefit (GMIB), and this in the settings of a derivative pricing model where the underlying spot (the fund) is locally governed by a geometric Brownian motion with local volatil…
Derives short-term option pricing asymptotics in local-stochastic volatility models.
LOV model calibrates European and American options with path-dependent volatility.
New method calibrates local volatility models to marginal distributions.
Proposes new Monte Carlo methods for calibrating local volatility models with stochastic components.
Paper approximates rough stochastic local volatility models for efficient computation.
Paper improves stochastic collocation for local volatility models.
We study the dynamics of the normal implied volatility in a local volatility model, using a small-time expansion in powers of maturity T. At leading order in this expansion, the asymptotics of the normal implied volatility is similar, up to a different definition of the moneyness, to that of the log-normal volatility. …
Paper provides an explicit formula for local volatility in Cheyette models.
The article reviews how to set stochastic volatility model parameters.
This paper explores the harmonic mean of implied volatility and its relation to local volatility.
It has often been stated that, within the class of continuous stochastic volatility models calibrated to vanillas, the price of a VIX future is maximized by the Dupire local volatility model. In this article we prove that this statement is incorrect: we build a continuous stochastic volatility model in which a VIX futu…
Study compares MC and QMC methods for pricing and risk analysis in a hyperbolic local volatility model.
A new method to estimate local volatility from high-frequency data.
Existence of calibrated local stochastic volatility models proven for non-regular coefficients.
A robust implementation of a Dupire type local volatility model is an important issue for every option trading floor. Typically, this (inverse) problem is solved in a two step procedure : (i) a smooth parametrization of the implied volatility surface; (ii) computation of the local volatility based on the resulting call…
The Local Volatility model is a well-known extension of the Black-Scholes constant volatility model whereby the volatility is dependent on both time and the underlying asset. This model can be calibrated to provide a perfect fit to a wide range of implied volatility surfaces. The model is easy to calibrate and still ve…
Proves existence and uniqueness of calibrated LSV model.
The Bass model is calibrated to vanilla options using a fixed-point equation.
Motivated by marginals-mimicking results for Itô processes via SDEs and by their applications to volatility modeling in finance, we discuss the weak convergence of the law of a hypoelliptic diffusions conditioned to belong to a target affine subspace at final time, namely if $X_{\cdot}=(Y_\cd…
We introduce a new class of local volatility models. Within this framework, we obtain expressions for both (i) the price of any European option and (ii) the induced implied volatility smile. As an illustration of our framework, we perform specific pricing and implied volatility computations for a CEV-like example. Nume…
We discuss the possibility of obtaining model-free bounds on volatility derivatives, given present market data in the form of a calibrated local volatility model. A counter-example to a wide-spread conjecture is given.
Two ML approaches learn local volatility surfaces from option prices, with GP being arbitrage-free.
We consider implied volatilities in asset pricing models, where the discounted underlying is a strict local martingale under the pricing measure. Our main result gives an asymptotic expansion of the right wing of the implied volatility smile and shows that the strict local martingale property can be determined from thi…
Asymptotic analysis of short-maturity options on realized variance in local-stochastic volatility models.
Improved LV model for interest rate swaptions and caplets.
Paper derives new option pricing formulas and approximations for a local volatility model with discontinuity.
We tackle the calibration of the so-called Stochastic-Local Volatility (SLV) model. This is the class of financial models that combines the local and stochastic volatility features and has been subject of the attention by many researchers recently. More precisely, given a local volatility surface and a choice of stocha…
Study on skew and curvature of implied and local volatilities using Malliavin calculus.
We propose two main applications of Gyöngy (1986)'s construction of inhomogeneous Markovian stochastic differential equations that mimick the one-dimensional marginals of continuous Itô processes. Firstly, we prove Dupire (1994) and Derman and Kani (1994)'s result. We then present Bessel-based stochastic volatility mod…
Bayesian method calibrates local volatility with Gaussian processes.
We consider a stochastic volatility model where the moment generating function of the logarithmic price is finite only on part of the real line. Using a new Tauberian result obtained in [1] and [2], we show that the knowledge of the moment generating function near its critical moment gives a sharp asymptotic expansion …
Study short-maturity Asian option pricing in LSV models using large deviations theory.
Efficient method for pricing multi-asset options with local volatility.
By Gyongy's theorem, a local and stochastic volatility (LSV) model is calibrated to the market prices of all European call options with positive maturities and strikes if its local volatility function is equal to the ratio of the Dupire local volatility function over the root conditional mean square of the stochastic v…
Quantum algorithm for multi-asset option pricing under different volatility models.
New approach improves computational efficiency of Bass Local Volatility model.
Study improves caplet calibration for 1Y maturity using different models.
We introduce a new factor model for log volatilities that performs dimensionality reduction and considers contributions globally through the market, and locally through cluster structure and their interactions. We do not assume a-priori the number of clusters in the data, instead using the Directed Bubble Hierarchical …
Model accurately calibrates FX market skew for exotic options.
The study calibrates VIX and VXX options using a multi-factor model.
It is well known that in models with time-homogeneous local volatility functions and constant interest and dividend rates, the European Put prices are transformed into European Call prices by the simultaneous exchanges of the interest and dividend rates and of the strike and spot price of the underlying. This paper inv…
Method calibrates local volatility and stochastic short rate models for equity-rate dynamics.
In this paper we derive an easily computed approximation to European basket call prices for a local volatility jump-diffusion model. We apply the asymptotic expansion method to find the approximate value of the lower bound of European basket call prices. If the local volatility function is time independent then there i…