LSV models with stochastic interest rates and correlated jumps
From MaRDI portal
Publication:4976326
Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Integro-partial differential equations (35R09) Finite difference and finite volume methods for ordinary differential equations (65L12) Interest rates, asset pricing, etc. (stochastic models) (91G30)
Abstract: Pricing and hedging exotic options using local stochastic volatility models drew a serious attention within the last decade, and nowadays became almost a standard approach to this problem. In this paper we show how this framework could be extended by adding to the model stochastic interest rates and correlated jumps in all three components. We also propose a new fully implicit modification of the popular Hundsdorfer and Verwer and Modified Craig-Sneyd finite-difference schemes which provides second order approximation in space and time, is unconditionally stable and preserves positivity of the solution, while still has a linear complexity in the number of grid nodes.
Recommendations
- Pricing of vanilla and first-generation exotic options in the local stochastic volatility framework: survey and new results
- Local stochastic volatility with jumps: analytical approximations
- On cross-currency models with stochastic volatility and correlated interest rates
- Pricing options under stochastic volatility jump model: a stable adaptive scheme
- On the Heston model with stochastic interest rates
Cites work
- A componentwise splitting method for pricing American options under the Bates model
- American options in the Heston model with stochastic interest rate and its generalizations
- An IMEX-scheme for pricing options under stochastic volatility models with jumps
- COMPONENTWISE SPLITTING METHODS FOR PRICING AMERICAN OPTIONS UNDER STOCHASTIC VOLATILITY
- Efficient numerical methods for pricing American options under stochastic volatility
- Efficient solution of structural default models with correlated jumps and mutual obligations
- Financial Modelling with Jump Processes
- Finite element solution of diffusion problems with irregular data
- HIGH ORDER SPLITTING METHODS FOR FORWARD PDEs AND PIDEs
- Lévy processes, polynomials and martingales
- New solvable stochastic volatility models for pricing volatility derivatives
- On the Heston model with stochastic interest rates
- Robust numerical methods for contingent claims under jump diffusion processes
- Smoothing with positivity-preserving Padé schemes for parabolic problems with nonsmooth data
- Stability of ADI schemes applied to convection--diffusion equations with mixed derivative terms
- The surprise element: Jumps in interest rates.
Cited in
(6)- Modelling stochastic skew of FX options using SLV models with stochastic spot/vol correlation and correlated jumps
- Pricing of vanilla and first-generation exotic options in the local stochastic volatility framework: survey and new results
- scientific article; zbMATH DE number 6001738 (Why is no real title available?)
- Pricing average and spread options under local-stochastic volatility jump-diffusion models
- Can negative interest rates really affect option pricing? Empirical evidence from an explicitly solvable stochastic volatility model
- Pricing autocallables under local-stochastic volatility
This page was built for publication: LSV models with stochastic interest rates and correlated jumps
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4976326)
