Questions tagged [stochastic-volatility]
383 questions
7
votes
1 answer
Market price of volatility risk
Reading Gatheral's The volatility surface, page 7.
The model they are talking about is
$$\begin{align}dS_t&=\mu_tS_tdt+\sqrt{\nu_t}S_tdZ_1\\d\nu_t&=\alpha(S_t,\nu_t,t)dt+\eta\beta(S_t,\nu_t,t)\sqrt{v_t}dZ_2\\\left[Z_1,Z_2\right]&=\rho…
Anna Taurogenireva
- 246
- 1
- 9
6
votes
3 answers
Stochastic volatility model with exponential OU volatility
I have a friend in the industry who said they are interested in the model I gave in the title. Whether they use it, idk.
$dS_t= S_t(rdt+ \sigma_t dW_t)$
And $\sigma_t$ is the exponential of an OU process. The brownian motions are negatively…
Lost1
- 1,023
- 6
- 18
4
votes
1 answer
Extended Areas on Stochastic Volatility Modelling
I'm interested in the areas surrounding Stochastic Volatility Modelling. I've read up on the main models that are prominent in the literature (Hull White, Heston, SABR) but I was wondering what the other issues facing this field are.
Incorporating…
Dabshffabjvs
- 163
- 5
2
votes
1 answer
What's the point of stochastic volatiliy models if you can use local volatility?
Given known call option prices, there is a unique local volatility function consistent with those prices.
So why use stochastic volatility models? We can use the market to find local volatility, and then that's our model, no?
Why do we need to…
Bala
- 21
- 1
2
votes
2 answers
Option Prices under the Heston Stochastic Volatility Model
I was wondering if anyone has come across a more straightforward derivation of the semi-closed form solution for the price of a european call under the Heston model than the one proposed by Heston (1993) ?
WeakLearner
- 297
- 2
- 10
1
vote
1 answer
How to verify sticky delta property on a stochastic volatility model
Given a stochastic model for the evolution of St, with a given SDE for its volatility, how can you tell if the given model satisfy the sticky delta (or the sticky strike) property? Is it possible to prove analytically this property? Or the only way…
Giacomo Giannoni
- 11
- 3
1
vote
1 answer
When a stochastic volatility model is calibrated?
In an Investment Bank, how often a stochastic volatility model is calibrated ? Is it calibrated daily ? Is it calibrated whenever a pricing is required ?
Thanks.
Youb
- 11
- 1
0
votes
0 answers
Gatheral clock time explanation
At the beginning of his well known book, Gatheral writes the following
[...] Moreover, unlike alternative models that can fit the smile (such as local
volatility models, for example), SV models assume realistic dynamics for
the underlying. Although…
KT8
- 855
- 4
- 21
0
votes
1 answer
wishart stochastic volatility models
Stochastic volatility models assume that volatility follow a random process.In the emerging market the volatility tend to be high.
why is it that the wishart stochastic volatility model fit well the emerging market
topi
- 1