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 they require numerical integration. To illustrate the accuracy and versatility of our method, we implement it under five different model dynamics: CEV local volatility, quadratic local volatility, Heston stochastic volatility, 3/2 stochastic volatility, and SABR local-stochastic volatility.

Explicit implied volatilities for multifactor local-stochastic volatility models

Pagliarani S;
2017-01-01

Abstract

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 they require numerical integration. To illustrate the accuracy and versatility of our method, we implement it under five different model dynamics: CEV local volatility, quadratic local volatility, Heston stochastic volatility, 3/2 stochastic volatility, and SABR local-stochastic volatility.
File in questo prodotto:
File Dimensione Formato  
mafi.12105.pdf

non disponibili

Tipologia: Versione Editoriale (PDF)
Licenza: Non pubblico
Dimensione 570.1 kB
Formato Adobe PDF
570.1 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11390/1130649
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 45
  • ???jsp.display-item.citation.isi??? 26
social impact