Stochastic volatility
The SABR forward smile
Thomas Roos presents the expressions for the implied volatilities of European and forward starting options
Hedging rate exotics, Bergomi-style
New paper by Nomura quant applies volatility model used in equities to exotic rate hedging
The swap market Bergomi model
The combination of two popular volatility models sharpens the hedging of exotic rate derivatives
Rising star in quant finance: Blanka Horvath, Aitor Muguruza and Mehdi Tomas
Risk Awards 2020: New machine learning techniques bring ‘rough volatility’ models to life
ADOL: Markovian approximation of a rough lognormal model
A variation of the rough volatility model is introduced by plugging in a different stochastic process
Nonparametric tests for jump detection via false discovery rate control: a Monte Carlo study
The main goal of this paper is to perform a comprehensive nonparametric jump detection model comparison and validation. To this end, the authors design an extensive Monte Carlo study to compare and validate these tests.
Application of the Heath–Platen estimator in the Fong–Vasicek short rate model
In this paper, the authors construct a Heath-Platen-type Monte Carlo estimator that performs extraordinarily well compared with the crude Monte Carlo estimation.
Roughening Heston
El Euch, Rosenbaum, Gatheral combine a rough volatility model with the classical Heston model
ε-monotone Fourier methods for optimal stochastic control in finance
In this paper, the authors give a preprocessing step for Fourier methods that involves projecting the Green’s function onto the set of linear basis functions.
An adaptive Filon quadrature for stochastic volatility models
In this paper, the author describes a simple adaptive Filon method that performs better and more accurately than various popular alternatives for pricing options under the Heston model.
The Garch linear SDE: explicit formulas and the pricing of a quanto CDS
A new closed-form approximation is applied to quanto CDS pricing
You don’t need to sacrifice accuracy for flexibility
BAML quant proposes option pricing model that softens conflict between the two properties
Podcast: Dominique Bang on his stochastic local vol model
New approach delivers quick and accurate computation of prices
Local stochastic volatility: shaken, not stirred
Dominique Bang introduces a novel LSV approach to term distribution modelling
The optimal investment problem in stochastic and local volatility models
This paper considers the classical optimal investment allocation problem of Merton through the lens of some more modern approaches, such as the stochastic volatility and local volatility models.
Knocking out corridor variance
Amine Ahallal and Olaf Torne add a knock-out barrier to the standard corridor variance swap
Optimal hedge ratios based on Markov-switching dynamic copula models
In this paper, the authors combine MS dynamic copulas with the skewed t SV model to study the optimal hedge ratios of portfolios.
Equity modelling with local stochastic volatility and stochastic discrete dividends
SocGen quants calibrate local stochastic volatility models with stochastic dividends
The swap market model with local stochastic volatility
An easy to calibrate and accurate swap market model is proposed
Importance sampling applied to Greeks for jump–diffusion models with stochastic volatility
In this paper, the authors develop a procedure to reduce the variance when numerically computing the Greeks obtained via Malliavin calculus for jump–diffusion models with stochastic volatility.
Hybrid finite-difference/pseudospectral methods for the Heston and Heston–Hull–White partial differential equations
In this paper, the authors propose a hybrid spatial finite-difference/pseudospectral discretization for European option-pricing problems under the Heston and Heston–Hull–White models.
What causes forex correlation swaps to be mispriced?
UBS quants show prices can differ by up to 25 correlation points if products modelled accurately
Foreign exchange correlation swap: problem solver or troublemaker?
A correlation structure is an important element in pricing products such as correlation swaps
American quantized calibration in stochastic volatility
Fiorin, Callegaro and Grasselli show how discretisation methods reduce computing time in high-dimensional problems