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.
Improved calibration of HJM models using small volatility approximation.
The paper shows robustness of Hilbert space-valued stochastic volatility models to perturbations.
Approximates derivative pricing under fractional stochastic volatility.
We derive caplet volatilities for quadratic models, providing an asymptotic approximation.
Approximates bond option volatilities using affine short-rate models.
Develops a martingale expansion for stochastic volatility models.
This study presents new analytic approximations of the stochastic-alpha-beta-rho (SABR) model. Unlike existing studies that focus on the equivalent Black-Scholes (BS) volatility, we instead derive the equivalent constant-elasticity-of-variance (CEV) volatility. Our approach effectively reduces the approximation error i…
Using classical Taylor series techniques, we develop a unified approach to pricing and implied volatility for European-style options in a general local-stochastic volatility setting. Our price approximations require only a normal CDF and our implied volatility approximations are fully explicit (ie, they require no spec…
Paper estimates Hurst parameter from implied volatilities.
Paper approximates rough stochastic local volatility models for efficient computation.
The BBF, SABR, and rough SABR formulas provide nearly arbitrage-free implied vol approximations.
Study approximates weak error for specific stochastic models with rough and Gaussian mean-reverting volatility.
The paper explores how score-driven models can approximate rough volatility.
This paper focuses on the pricing of continuous geometric Asian options (GAOs) under a multifactor stochastic volatility model. The model considers fast and slow mean reverting factors of volatility, where slow volatility factor is approximated by a quadratic arc. The asymptotic expansion of the price function is assum…
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…
We consider a general local-stochastic volatility model and an investor with exponential utility. For a European-style contingent claim, whose payoff may depend on either a traded or non-traded asset, we derive an explicit approximation for both the buyer's and seller's indifference price. For European calls on a trade…
In the present work, we propose a new multifactor stochastic volatility model in which slow factor of volatility is approximated by a parabolic arc. We retain ourselves to the perturbation technique to obtain approximate expression for European option prices. We introduce the notion of modified Black-Scholes price. We …
The growth of the exhange-traded fund (ETF) industry has given rise to the trading of options written on ETFs and their leveraged counterparts {(LETFs)}. We study the relationship between the ETF and LETF implied volatility surfaces when the underlying ETF is modeled by a general class of local-stochastic volatility mo…
We examine in this article the pricing of target volatility options in the lognormal fractional SABR model. A decomposition formula by Ito's calculus yields a theoretical replicating strategy for the target volatility option, assuming the accessibilities of all variance swaps and swaptions. The same formula also sugges…
The paper derives closed-form approximations for mean-reverting SABR models and calibrates them to equity volatilities.
Researchers develop explicit approximations for European put options in stochastic volatility models.
Paper provides an explicit formula for local volatility in Cheyette models.
Study approximates rough stochastic volatility models using diffusion processes.
Rough volatility models are very appealing because of their remarkable fit of both historical and implied volatilities. However, due to the non-Markovian and non-semimartingale nature of the volatility process, there is no simple way to simulate efficiently such models, which makes risk management of derivatives an int…
Some expansion methods have been proposed for approximately pricing options which has no exact closed formula. Benhamou et al. (2010) presents the smart expansion method that directly expands the expectation value of payoff function with respect to the volatility of volatility, then uses it to price options in the stoc…
We develop a Markovian approximation for SVV models to compute hedging strategies.
New method improves Euler approximation for local stochastic volatility models.
We study the problem of option replication under constant proportional transaction costs in models where stochastic volatility and jumps are combined to capture the market's important features. Assuming some mild condition on the jump size distribution we show that transaction costs can be approximately compensated by …
Matrix approximation method for Bachelier option pricing and Greeks under stochastic volatility models
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local volatility/stochastic volatility mixture model, where the mixture parameter tunes that covariance. T…
The paper provides an efficient method to price path-dependent derivatives using multiscale stochastic volatility models.
Paper derives new option pricing formulas and approximations for a local volatility model with discontinuity.
We create precise formulas for VIX option implied volatility.
A new model captures forward curve dynamics with stochastic volatility.
We study the mass at the origin in the uncorrelated SABR stochastic volatility model, and derive several tractable expressions, in particular when time becomes small or large. As an application--in fact the original motivation for this paper--we derive small-strike expansions for the implied volatility when the maturit…
Stochastic Volatility in Mean models with heavy-tailed distributions using Hidden Markov Models
In this paper, we study the asymptotic behavior of Asian option prices in the worst case scenario under an uncertain volatility model. We give a procedure to approximate the Asian option prices with a small volatility interval. By imposing additional conditions on the boundary condition and cutting the obtained Black-S…
In this paper, Malliavin calculus is applied to arrive at exact formulas for the difference between the volatility swap strike and the zero vanna implied volatility for volatilities driven by fractional noise. To the best of our knowledge, our estimate is the first to derive the rigorous relationship between the zero v…
The research presented in this article provides an alternative option pricing approach for a class of rough fractional stochastic volatility models. These models are increasingly popular between academics and practitioners due to their surprising consistency with financial markets. However, they bring several challenge…
Enhances swaption modeling with rough stochastic volatility.
This paper discusses the short-maturity behavior of Asian option prices and hedging portfolios. We consider the risk-neutral valuation and the delta value of the Asian option having a Hölder continuous payoff function in a local volatility model. The main idea of this analysis is that the local volatility model can be …
Two new rational formulae for normal implied volatility are presented.
Deep neural networks can accurately approximate option prices in stochastic volatility models.
We investigate the pricing of financial options under the 2-hypergeometric stochastic volatility model. This is an analytically tractable model that reproduces the volatility smile and skew effects observed in empirical market data. Using a regular perturbation method from asymptotic analysis of partial differential eq…
New method for CMS derivatives pricing using Watanabe's expansions.
A new model for S&P 500 and VIX options pricing and calibration.
New high-order approximations for CIR process using random grids.
We derive asymptotic expansions for the prices of a variety of European and barrier-style claims in a general local-stochastic volatility setting. Our method combines Taylor series expansions of the diffusion coefficients with an expansion in the correlation parameter between the underlying asset and volatility process…