The risk-neutral stochastic volatility in interest rate models with jump–diffusion processes
نویسندگان
چکیده
منابع مشابه
Interest Rate Models’ Implied Volatility Function Stochastic Movements
Abstract: This paper presents a one factor and a two factor arbitrage-free interest rate models with parsimonious implied volatility functions. The models are empirically tested on the entire swaption surface in three currencies (U. S. dollar, Euro and Japanese yen) over a five year period. They are shown to be robust in explaining the swaption values, and the implied volatility functions are s...
متن کاملAn Equity-Interest Rate hybrid model with Stochastic Volatility and the interest rate smile
We define an equity-interest rate hybrid model in which the equity part is driven by the Heston stochastic volatility [Hes93], and the interest rate (IR) is generated by the displaced-diffusion stochastic volatility Libor Market Model [AA02]. We assume a non-zero correlation between the main processes. By an appropriate change of measure the dimension of the corresponding pricing PDE can be gre...
متن کاملEstimation of risk-neutral processes in single-factor jump-diffusion interest rate models
The estimation of the market price of risk is an open question in the jump-diffusion term structure literature when a closed-form solution is not known. Furthermore, the estimation of the physical drift has a high risk of misspecification. In this paper, we obtain some results that relate the risk-neutral drift and the risk-neutral jump intensity of interest rates with the prices and yields of ...
متن کاملPricing variance swaps under stochastic volatility and stochastic interest rate
In this thesis, we study the issue of pricing discretely-sampled variance swaps under stochastic volatility and stochastic interest rate. In particular, our modeling framework consists of the equity which follows the dynamics of the Heston stochastic volatility model, whereas the stochastic interest rate is driven by the Cox-Ingersoll-Ross (CIR) model. We first extend the framework of [119] by ...
متن کاملA Risk-Neutral Stochastic Volatility Model
We construct a risk-neutral stochastic volatility model using no-arbitrage pricing principles. We then study the behavior of the implied volatility of options that are deep in and out of the money according to this model. The motivation of this study is to show the diierence in the asymptotic behavior of the distribution tails between the usual Black-Scholes log-normal distribution and the risk...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
ژورنال
عنوان ژورنال: Journal of Computational and Applied Mathematics
سال: 2019
ISSN: 0377-0427
DOI: 10.1016/j.cam.2018.07.048