Download or read book Stochastic volatility models Efficiency and Hedging written by and published by . This book was released on 2013 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Volatility Surface and Term Structure written by Kin Keung Lai and published by Routledge. This book was released on 2013-09-11 with total page 113 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides different financial models based on options to predict underlying asset price and design the risk hedging strategies. Authors of the book have made theoretical innovation to these models to enable the models to be applicable to real market. The book also introduces risk management and hedging strategies based on different criterions. These strategies provide practical guide for real option trading. This book studies the classical stochastic volatility and deterministic volatility models. For the former, the classical Heston model is integrated with volatility term structure. The correlation of Heston model is considered to be variable. For the latter, the local volatility model is improved from experience of financial practice. The improved local volatility surface is then used for price forecasting. VaR and CVaR are employed as standard criterions for risk management. The options trading strategies are also designed combining different types of options and they have been proven to be profitable in real market. This book is a combination of theory and practice. Users will find the applications of these financial models in real market to be effective and efficient.

Download or read book Hedging in Affine Stochastic Volatility Models written by Richard Vierthauer and published by . This book was released on 2010 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Stochastic Volatility Modeling written by Lorenzo Bergomi and published by CRC Press. This book was released on 2015-12-16 with total page 520 pages. Available in PDF, EPUB and Kindle. Book excerpt: Packed with insights, Lorenzo Bergomi's Stochastic Volatility Modeling explains how stochastic volatility is used to address issues arising in the modeling of derivatives, including:Which trading issues do we tackle with stochastic volatility? How do we design models and assess their relevance? How do we tell which models are usable and when does c

Download or read book Volatility and Correlation written by Riccardo Rebonato and published by John Wiley & Sons. This book was released on 2005-07-08 with total page 864 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Volatility and Correlation 2nd edition: The Perfect Hedger and the Fox, Rebonato looks at derivatives pricing from the angle of volatility and correlation. With both practical and theoretical applications, this is a thorough update of the highly successful Volatility & Correlation – with over 80% new or fully reworked material and is a must have both for practitioners and for students. The new and updated material includes a critical examination of the ‘perfect-replication’ approach to derivatives pricing, with special attention given to exotic options; a thorough analysis of the role of quadratic variation in derivatives pricing and hedging; a discussion of the informational efficiency of markets in commonly-used calibration and hedging practices. Treatment of new models including Variance Gamma, displaced diffusion, stochastic volatility for interest-rate smiles and equity/FX options. The book is split into four parts. Part I deals with a Black world without smiles, sets out the author’s ‘philosophical’ approach and covers deterministic volatility. Part II looks at smiles in equity and FX worlds. It begins with a review of relevant empirical information about smiles, and provides coverage of local-stochastic-volatility, general-stochastic-volatility, jump-diffusion and Variance-Gamma processes. Part II concludes with an important chapter that discusses if and to what extent one can dispense with an explicit specification of a model, and can directly prescribe the dynamics of the smile surface. Part III focusses on interest rates when the volatility is deterministic. Part IV extends this setting in order to account for smiles in a financially motivated and computationally tractable manner. In this final part the author deals with CEV processes, with diffusive stochastic volatility and with Markov-chain processes. Praise for the First Edition: “In this book, Dr Rebonato brings his penetrating eye to bear on option pricing and hedging.... The book is a must-read for those who already know the basics of options and are looking for an edge in applying the more sophisticated approaches that have recently been developed.” —Professor Ian Cooper, London Business School “Volatility and correlation are at the very core of all option pricing and hedging. In this book, Riccardo Rebonato presents the subject in his characteristically elegant and simple fashion...A rare combination of intellectual insight and practical common sense.” —Anthony Neuberger, London Business School

Download or read book Risk Minimization in Stochastic Volatility Models written by Rolf Poulsen and published by . This book was released on 2007 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper the performance of locally risk-minimizing hedge strategies for European options in stochastic volatility models is studied from an experimental as well as from an empirical perspective. These hedge strategies are derived for a large class of diffusion-type stochastic volatility models, and they are as easy to implement as usual delta hedges. Our simulation results on model risk show that the locally risk-minimizing hedges are robust with respect to uncertainty and even misconceptions about the underlying data generating process. The empirical study indicates that locally risk-minimizing hedge strategies consistently produce lower standard deviations of profit-and-loss-ratios than delta hedges (over different time periods as well as in different markets). The more skewed the market and the more out-of-the-money the option, the higher the benefit.

Download or read book Pricing and Hedging Index Options Under Stochastic Volatility written by Saikat Nandi and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: An empirical examination of the pricing and hedging performance of a stochastic volatility (SV) model with closed form solution (Heston 1993) is provided for options on the Samp;P 500 index in which the unobservable time varying volatility is jointly estimated with the time invariant parameters of the model. Although, out-of-sample, the mean absolute pricing error in the SV model is always lower than in the Black-Scholes model, still substantial mispricings are observed for deep out-of-the-money options. The degree of mispricing in different options classes is related to bid-ask spreads on options and options trading volume after controlling for moneyness and maturity biases. Taking into account the transactions costs (bid-ask spreads) in the options market and using Samp;P 500 futures to hedge, it is found that the stochastic volatility model yields lower variance for a minimum variance hedge portfolio than the Black-Scholes model for most classes of options and the differences in variances are statistically significant. The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

Download or read book Option Hedging and Valuation Under Stochastic Volatility written by Joshua Rosenberg and published by . This book was released on 1996 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Hedging Options in a GARCH Environment written by Robert F. Engle and published by . This book was released on 1994 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a methodology for testing the term structure of volatility forecasts derived from stochastic volatility models, and implements it to analyze models of S & P 500 index volatility. Volatility models are compared by their ability to hedge options positions sensitive to the term structure of volatility. Overall, the most effective hedge is a Black-Scholes (BS) delta-gamma hedge, while the BS delta-vega hedge is the least effective. The most successful volatility hedge is GARCH components delta-gamma, suggesting that the GARCH components estimate of the term structure of volatility is most accurate. The success of the BS delta-gamma hedge may be due to mispricing in the options market over the sample period.

Download or read book Stochastic Volatility in Financial Markets written by Fabio Fornari and published by Springer Science & Business Media. This book was released on 2000-05-31 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: Presenting advanced topics in financial econometrics and theoretical finance, this guide is divided into three main parts.

Download or read book A Note on Hedging with Local and Stochastic Volatility Models written by Fabio Mercurio and published by . This book was released on 2016 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: The behaviour of a smile model when applied to hedging should be consistent with market evidence that asset prices and market smiles move in the same direction (Hagan et al. 2002). Local volatility models are criticized because not consistent with this desired behaviour, and this has been an important driver towards the use of stochastic volatility models.In this work we perform a simple analysis showing that, if we take into account explicitly the correlation between stochastic volatility and underlying asset which is typical of the most common stochastic volatility models, the hedging behaviour of stochastic volatility models does not always conform with the desired behaviour of a smile model in hedging.With further simple tests we show that the behaviour of local volatility and stochastic volatility models calibrated to market skew is less different than assumed in current market wisdom. Both approaches, when used consistently with model assumptions, do not show the desired behaviour in hedging, while for both models the desired behaviour is obtained in market practice by hedging techniques which are not fully consistent with rigorous model assumptions.

Download or read book Pricing and Hedging Exotic Options in Stochastic Volatility Models written by Zhanyu Chen and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Hedging Options with Local and Stochastic Volatility Models written by Leonardo Martins Nogueira and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Stochastic Volatility Models Valuing Volatility Swaps and Hedging Errors written by My-Chau Lam and published by . This book was released on 2002 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Performance of Popular Stochastic Volatility Option Pricing Models During the Subprime Crisis written by Thibaut Moyaert and published by . This book was released on 2016 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using daily options prices on the Eurostoxx 50 stock index over the whole year 2008, we compare the performance of three popular stochastic volatility models (Heston, 1993; Bates, 1996; Heston and Nandi, 2'007, in addition to the traditional Black-Scholes model and a proprietary trading desk model. We show that the most consistent in-sample and out-of-sample statistical performance is obtained for the internal model. However, the Bates model seems to be better suited to short term (out-of-the-money) options while the Heston model seems to perform better for medium or long term options. In terms of hedging performance, the Heston and Nandi model exhibits the best average, albeit most volatile, result and the Heston model outperforms the Black and Scholes model in terms of hedging errors, mainly for option contracts that mature in-the-money.

Download or read book Pricing Models of Volatility Products and Exotic Variance Derivatives written by Yue Kuen Kwok and published by CRC Press. This book was released on 2022-05-08 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: Pricing Models of Volatility Products and Exotic Variance Derivatives summarizes most of the recent research results in pricing models of derivatives on discrete realized variance and VIX. The book begins with the presentation of volatility trading and uses of variance derivatives. It then moves on to discuss the robust replication strategy of variance swaps using portfolio of options, which is one of the major milestones in pricing theory of variance derivatives. The replication procedure provides the theoretical foundation of the construction of VIX. This book provides sound arguments for formulating the pricing models of variance derivatives and establishes formal proofs of various technical results. Illustrative numerical examples are included to show accuracy and effectiveness of analytic and approximation methods. Features Useful for practitioners and quants in the financial industry who need to make choices between various pricing models of variance derivatives Fabulous resource for researchers interested in pricing and hedging issues of variance derivatives and VIX products Can be used as a university textbook in a topic course on pricing variance derivatives

Download or read book Stochastic Volatility Models written by Warrick Poklewski-Koziell and published by . This book was released on 2012 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: