We present new approximation formulas for local stochastic volatility models, possibly including Lévy jumps. Our main result is an expansion of the characteristic function which is worked out in the Fourier space. Combined with standard Fourier methods, our result provides efficient and accurate formulas for the prices and the Greeks of plain vanilla options. We finally provide numerical results to illustrate the accuracy with real market data.

A. Pascucci, S. Pagliarani (2013). Local stochastic volatility with jumps: analytical approximations. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE, 16, 1-35 [10.1142/S0219024913500507].

Local stochastic volatility with jumps: analytical approximations

PASCUCCI, ANDREA;S. Pagliarani
2013

Abstract

We present new approximation formulas for local stochastic volatility models, possibly including Lévy jumps. Our main result is an expansion of the characteristic function which is worked out in the Fourier space. Combined with standard Fourier methods, our result provides efficient and accurate formulas for the prices and the Greeks of plain vanilla options. We finally provide numerical results to illustrate the accuracy with real market data.
2013
A. Pascucci, S. Pagliarani (2013). Local stochastic volatility with jumps: analytical approximations. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE, 16, 1-35 [10.1142/S0219024913500507].
A. Pascucci; S. Pagliarani
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/116838
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