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Implied Calibration of Stochastic Volatility Jump Diffusion Models

Author

Listed:
  • Stefano Galluccio

    (BNP Paribas)

  • Yann Le Cam

    (University of Evry Val d'Essonne)

Abstract

In 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.

Suggested Citation

  • Stefano Galluccio & Yann Le Cam, 2005. "Implied Calibration of Stochastic Volatility Jump Diffusion Models," Finance 0510028, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0510028
    Note: Type of Document - pdf; pages: 40
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    References listed on IDEAS

    as
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    Cited by:

    1. Giacomo Bormetti & Valentina Cazzola & Danilo Delpini, 2010. "Option Pricing Under Ornstein-Uhlenbeck Stochastic Volatility: A Linear Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 13(07), pages 1047-1063.
    2. Giacomo Bormetti & Valentina Cazzola & Danilo Delpini, 2009. "Option pricing under Ornstein-Uhlenbeck stochastic volatility: a linear model," Papers 0905.1882, arXiv.org, revised May 2010.

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    More about this item

    Keywords

    Affine-quadratic models; Option pricing; Model Calibration;
    All these keywords.

    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

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