Why are quadratic normal volatility models analytically tractable? (Q2873123)
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scientific article; zbMATH DE number 6249458
| Language | Label | Description | Also known as |
|---|---|---|---|
| English | Why are quadratic normal volatility models analytically tractable? |
scientific article; zbMATH DE number 6249458 |
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23 January 2014
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local volatility
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pricing
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foreign exchange
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Riccati equation
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change of numéraire
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local martingale
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semistatic hedging
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hyperinflation
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0.7692909
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0.7649476
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0.7621025
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0.7581503
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0.75642383
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0.7552028
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0.75241536
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Why are quadratic normal volatility models analytically tractable? (English)
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The paper focuses on quadratic normal volatility (QNV) models, in light of their applications within the financial context. After a brief introduction to QNV models, the study investigates how such models can be obtained by a stopped Brownian motion. Then, connections between QNV models and geometric Brownian motion are investigated, as well as their stability under changes of numéraires. Moreover, results on semistatic hedging are provided. Finally, the financial interpretation of certain QNV processes is discussed.
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