Calibration of local volatility model with stochastic interest rates by efficient numerical PDE methods

DOI10.1007/s10203-019-00232-3zbMath1432.91137arXiv1803.03941OpenAlexW2964142847WikidataQ128526657 ScholiaQ128526657MaRDI QIDQ2292056

Julien Hok, Shih-Hau Tan

Publication date: 31 January 2020

Published in: Decisions in Economics and Finance (Search for Journal in Brave)

Full work available at URL: https://arxiv.org/abs/1803.03941

zbMATH Keywords

calibrationstochastic interest rateshybridalternating direction implicit (ADI) methodlocal volatility modelforward Fokker-Planck-type equation

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) PDEs in connection with biology, chemistry and other natural sciences (35Q92) Interest rates, asset pricing, etc. (stochastic models) (91G30) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods for partial differential equations, initial value and time-dependent initial-boundary value problems (65M99)

Related Items (2)

CALIBRATING LOCAL VOLATILITY MODELS WITH STOCHASTIC DRIFT AND DIFFUSION ⋮ Volatility and volatility-linked derivatives: estimation, modeling, and pricing

Cites Work

• Unnamed Item
• Unnamed Item
• Unnamed Item
• Martingale methods in financial modelling.
• Interest rate models -- theory and practice. With smile, inflation and credit
• Convergence of the modified Craig-Sneyd scheme for two-dimensional convection-diffusion equations with mixed derivative term
• Smart expansion and fast calibration for jump diffusions
• Option pricing under stochastic interest rates: an empirical investigation
• Stochastic calculus for finance. II: Continuous-time models.
• Distributions in the physical and engineering sciences. Volume 2: Linear and nonlinear dynamics in continuous media
• Analytical formulas for a local volatility model with stochastic rates
• The Numerical Solution of Parabolic and Elliptic Differential Equations
• Forward implied volatility expansion in time-dependent local volatility models
• Stochastic Implied Trees: Arbitrage Pricing with Stochastic Term and Strike Structure of Volatility
• Volatility skews and extensions of the Libor market model
• EXPANSION FORMULAS FOR EUROPEAN QUANTO OPTIONS IN A LOCAL VOLATILITY FX-LIBOR MODEL
• EXPANSION FORMULAS FOR BIVARIATE PAYOFFS WITH APPLICATION TO BEST-OF OPTIONS ON EQUITY AND INFLATION
• Non-parametric pricing of long-dated volatility derivatives under stochastic interest rates
• Stochastic Volatility Model with Time‐dependent Skew
• Modelling stochastic skew of FX options using SLV models with stochastic spot/vol correlation and correlated jumps
• Stochastic differential equations. An introduction with applications.

This page was built for publication: Calibration of local volatility model with stochastic interest rates by efficient numerical PDE methods