An investigation of model risk in a market with jumps and stochastic volatility

DOI10.1016/J.EJOR.2016.03.018MaRDI QIDQ323232zbMATH OpenOpenAlexFDO

Authors Guillaume Coqueret, Bertrand Tavin

Publication date 7 October 2016

Published in European Journal of Operational Research (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/j.ejor.2016.03.018

zbMATH Keywords

risk managementrobustness and sensitivity analysismodel riskvariance swapforward-start option

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Statistical methods; risk measures (91G70)

Recommendations

• Model risk in the over-the-counter market
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Cites work

• A closed-form solution for options with stochastic volatility with applications to bond and currency options
• A jump-diffusion model for option pricing
• A theory of the term structure of interest rates
• Assessing financial model risk
• Coherent measures of risk
• Equity correlations implied by index options: estimation and model uncertainty analysis
• Financial Modelling with Jump Processes
• Lévy processes, polynomials and martingales
• MODEL UNCERTAINTY AND ITS IMPACT ON THE PRICING OF DERIVATIVE INSTRUMENTS
• Model risk of contingent claims
• Non-Gaussian Ornstein-Uhlenbeck-based models and some of their uses in financial economics. (With discussion)
• Normal Inverse Gaussian Distributions and Stochastic Volatility Modelling
• On the density of log-spot in the Heston volatility model
• On the pricing of forward starting options in Heston's model on stochastic volatility
• Prices and asymptotics for discrete variance swaps
• Processes of normal inverse Gaussian type
• Risk minimization in stochastic volatility models: model risk and empirical performance
• Stochastic Volatility for Lévy Processes
• The shape and term structure of the index option smirk: why multifactor stochastic volatility models work so well
• Variance swap with mean reversion, multifactor stochastic volatility and jumps
• Variance swaps on time-changed Lévy processes
• Worst-case robust Omega ratio
• Worst-case robust decisions for multi-period mean-variance portfolio optimization

Cited in

(16)

• Practice-relevant model validation: distributional parameter risk analysis in financial model risk management
• A data-driven framework for consistent financial valuation and risk measurement
• VIX derivatives, hedging and vol-of-vol risk
• Multivariate FX models with jumps: triangles, quantos and implied correlation
• A general framework for discretely sampled realized variance derivatives in stochastic volatility models with jumps
• Intra‐Horizon expected shortfall and risk structure in models with jumps
• A slightly depressing jump model: intraday volatility pattern simulation
• Model risk in the over-the-counter market
• Smiles \& smirks: volatility and leverage by jumps
• Jumps and betas: a new framework for disentangling and estimating systematic risks
• MEASURING MODEL RISK IN FINANCIAL RISK MANAGEMENT AND PRICING
• Stochastic models for risk estimation in volatile markets: a survey
• Measuring exposure to dependence risk with random Bernstein copula scenarios
• EQUILIBRIUM PRICE OF VARIANCE SWAPS UNDER STOCHASTIC VOLATILITY WITH LÉVY JUMPS AND STOCHASTIC INTEREST RATE
• Measuring the unmeasurable: an application of uncertainty quantification to treasury bond portfolios
• How to choose the return model for market risk? Getting towards a right magnitude of stressed VaR

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