A Stochastic Volatility Model For Risk-Reversals In Foreign Exchange
It 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.
Volume (Year): 12 (2009)
Issue (Month): 06 ()
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