Implied Calibration of Stochastic Volatility Jump Diffusion Models
AbstractIn the context of arbitrage-free modelling of financial derivatives, we introduce a novel calibration technique for models in the affine- quadratic class for the purpose of contingent claims pricing and risk- management. In particular, we aim at calibrating a stochastic volatility jump diffusion model to the whole market volatility surface at any given time. We numerically implement the algorithm and show that the proposed approach is both stable and accurate.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0510028.
Length: 40 pages
Date of creation: 25 Oct 2005
Date of revision:
Note: Type of Document - pdf; pages: 40
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Affine-quadratic models; Option pricing; Model Calibration;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
- NEP-ETS-2005-10-29 (Econometric Time Series)
- NEP-FIN-2005-10-29 (Finance)
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