Smiles all around: FX joint calibration in a multi-Heston model
نویسندگان
چکیده
We introduce a novel multi-factor Heston-based stochastic volatility model, which is able to reproduce consistently typical multi-dimensional FX vanilla markets, while retaining the (semi)-analytical tractability typical of affine models and relying on a reasonable number of parameters. A successful joint calibration to real market data is presented together with various inand out-of-sample calibration exercises to highlight the robustness of the parameters estimation. The proposed model preserves the natural inversion and triangulation symmetries of FX spot rates and its functional form, irrespective of choice of the risk-free currency. That is, all currencies are treated in the same way.
منابع مشابه
Cross-Dependent Volatility
Local volatilities in multi-asset models typically have no cross-asset dependency. In this talk, we propose a general framework for pricing and hedging derivatives in cross-dependent volatility (CDV) models, i.e., multi-asset models in which the volatility of each asset is a function of not only its current or past levels, but also those of the other assets. For instance, CDV models can capture...
متن کاملOn Cross-Currency Models with Stochastic Volatility and Correlated Interest Rates
We construct multi-currency models with stochastic volatility and correlated stochastic interest rates with a full matrix of correlations. We first deal with a foreign exchange (FX) model of Heston-type, in which the domestic and foreign interest rates are generated by the short-rate process of Hull-White [HW96]. We then extend the framework by modeling the interest rate by a stochastic volatil...
متن کاملFull and fast calibration of the Heston stochastic volatility model
This paper presents an algorithm for a complete and efficient calibration of the Heston stochastic volatility model. We express the calibration as a nonlinear least-squares problem. We exploit a suitable representation of the Heston characteristic function and modify it to avoid discontinuities caused by branch switchings of complex functions. Using this representation, we obtain the analytical...
متن کاملCrooked Volatility Smiles: Evidence from Leveraged and Inverse ETF Options
We find that leverage in exchange traded funds (ETFs) can affect the “crookedness” of volatility smiles. This observation is consistent with the intuition that return shocks are inversely correlated with volatility shocks – resulting in more expensive out-of-the-money put options and less expensive out-of-the-money call options. We show that the prices of options on leveraged and inverse ETFs c...
متن کاملCoupling local currency Libor models to FX Libor models
We focus on the coupling of two existing and calibrated single currency Libor models into a joint Libor model that allows for pricing of multiple currency based structured interest rate products. Our main contribution is twofold: On the one hand we provide a method for synthesizing two local currency based correlation structures into a correctly defined joint correlation structure that describe...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2013