Price sensitivities for a general stochastic volatility model

zbMATH Open1427.60062arXiv1705.02474MaRDI QIDQ5205070FDOQ5205070

Authors: Youssef El-Khatib, Abdulnasser Hatemi-J 

Publication date: 10 December 2019

Abstract: We deal with the calculation of price sensitivities for stochastic volatility models. General forms for the dynamics of the underlying asset price and its volatility are considered. We make use of the chaotic (or Malliavin) calculus to compute the price sensitivities. The obtained results are applied to several recent stochastic volatility models as well as the existing ones that are commonly used by practitioners. Each price sensitivity is a source of financial risk. The suggested formulas are expected to improve on the hedging of the underlying risk.

Full work available at URL: https://arxiv.org/abs/1705.02474

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zbMATH Keywords

Malliavin calculusBrownian motionstochastic volatilityIto formulaSDEsprice sensitivities

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Gaussian processes (60G15) Stochastic calculus of variations and the Malliavin calculus (60H07) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Cited In (9)

• Error Calculus and Path Sensitivity in Financial Models
• An integral representation of elasticity and sensitivity for stochastic volatility models
• EQUILIBRIUM STATE PRICES IN A STOCHASTIC VOLATILITY MODEL¹
• Variational sensitivity analysis of parametric Markovian market models
• SENSITIVITY ANALYSIS AND DENSITY ESTIMATION FOR THE HOBSON-ROGERS STOCHASTIC VOLATILITY MODEL
• Sensitivity analysis in the infinite dimensional Heston model
• Sensitivity of option prices via fuzzy Malliavin calculus
• On the computation of option prices and sensitivities in the Black-Scholes-Merton model
• On the sensitivity analysis of spread options using Malliavin calculus

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