Local volatility models
Quants of the year: Jesper Andreasen and Brian Huge, Danske Bank
Risk awards 2012
Being particular about calibration
Following previous work on the calibration of multi-factor local stochastic volatility models to market smiles, Julien Guyon and Pierre Henry-Labordère show how to calibrate exactly any such model. Their approach, based on McKean’s particle method,…
Filling the gaps
Filling the gaps
From spot volatilities to implied volatilities
From spot volatilities to implied volatilities
BAML's Lipton: discrete models essential to cut CVA computation costs – Video
Top quant says a CVA model that is 80% accurate but takes 20% of the time is "very attractive"
From spot volatilities to implied volatilities
From spot volatilities to implied volatilities
Volatility interpolation
Volatility interpolation
Smiling jumps
Smiling jumps
Breaking correlation breaks
Breaking correlation breaks
Expanded smiles
Implementing models with stochastic as well as deterministic local volatility can be challenging. Here, Jesper Andreasen and Brian Huge describe an expansion approach for such models that avoids the high-dimensional partial differential equations usually…
A dynamic model for correlation
Equity markets have experienced a significant increase in correlation during the crisis, resulting in exotic derivatives portfolios realising large losses. As larger correlations in downward scenarios are already implied in the index option market in the…
Quant of the Year - Dilip Madan
Risk Awards 2008
Lifetime Achievement Award - Bruno Dupire
Risk Awards 2008
Calibrating and pricing with local volatility models
Cutting edge - Option pricing
Calibrating and pricing with embedded local volatility models
Consistently fitting vanilla option surfaces when pricing volatility derivatives such as Vix options or interest rate/equity hybrids is an important issue. Here, Yong Ren, Dilip Madan and Michael Qian Qian show how this can be accomplished, using a…
Smile dynamics II
In an article published in Risk in September 2004, Lorenzo Bergomi highlighted how traditionalstochastic volatility and jump/Lévy models impose structural constraints on the relationshipbetween the forward skew, the spot/volatility correlation and the…
An arbitrage-free interpolation of volatilities
Nabil Kahalé describes a new construction of an implied volatilities surface from a discrete set of implied volatilities that is arbitrage-free and satisfies some smoothness conditions. His method provides an excellent fit to the smile of the local…
Universal Barriers
As our survey in this issue shows, there is an increasing volume of barrier products traded in the forex options market. Here, Alexander Lipton and William McGhee discuss the pricing of barriers under various model frameworks, with particular focus on…
A mixed-up smile
Implied volatility
If the skew fits
Volatility