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.
Local stochastic volatility with jumps: analytical approximations / A. Pascucci; S. Pagliarani. - In: INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE. - ISSN 0219-0249. - STAMPA. - 16:(2013), pp. 1350050.1-1350050.35. [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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
