A Stochastic Volatility Model For Risk-Reversals In Foreign Exchange
AbstractIt is a widely recognized fact that risk-reversals play a central role in the pricing of derivatives in foreign exchange markets. It is also known that the values of risk-reversals vary stochastically with time. In this paper we introduce a stochastic volatility model with jumps and local volatility, defined on a continuous time lattice, which provides a way of modeling this kind of risk using numerically stable and relatively efficient algorithms.
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Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.
Volume (Year): 12 (2009)
Issue (Month): 06 ()
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- Claudio Albanese & Harry Lo & Aleksandar Mijatovic, 2009.
"Spectral methods for volatility derivatives,"
Taylor & Francis Journals, vol. 9(6), pages 663-692.
- Albanese, Claudio & Mijatovic, Aleksandar, 2006. "Spectral Methods For Volatility Derivatives," MPRA Paper 5244, University Library of Munich, Germany.
- Claudio Albanese & Harry Lo & Aleksandar Mijatovi\'c, 2009. "Spectral methods for volatility derivatives," Science & Finance (CFM) working paper archive 0905.2091, Science & Finance, Capital Fund Management.
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