A Hull and White formula for a general stochastic volatility jump-diffusion model with applications to the study of the short-time behavior of the implied volatility
Elisa Alòs () Jorge A. León Monique Pontier Josep Vives
Abstract
In this paper, generalizing results in Alòs, León and Vives (2007b), we see that the dependence of jumps in the volatility under a jump-diffusion stochastic volatility model, has no effect on the short-time behaviour of the at-the-money implied volatility skew, although the corresponding Hull and White formula depends on the jumps. Towards this end, we use Malliavin calculus techniques for Lévy processes based on Løkka (2004), Petrou (2006), and Solé, Utzet and Vives (2007).
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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number
1081.