Stochastic volatility
Foreign exchange correlation swap: problem solver or troublemaker?
A correlation structure is an important element in pricing products such as correlation swaps
American quantized calibration in stochastic volatility
Fiorin, Callegaro and Grasselli show how discretisation methods reduce computing time in high-dimensional problems
A hybrid tree/finite-difference approach for Heston–Hull–White-type models
In this paper, the authors study a hybrid tree/finite-difference method, which allows us to obtain efficient and accurate European and American option prices in the Heston–Hull– White and Heston–Hull–White2d models.
Local volatility from American options
De Marco and Henry-Labordère provide an approximation of American options in terms of the local volatility function
Local-stochastic volatility: models and non-models
Lorenzo Bergomi exposes a condition important to the use of LSV models in trading
Pricing and hedging options with rollover parameters
This paper consists of a “horse race” study comparing (i) a number of option pricing models, and (ii) roll-over estimation procedures.
Model-free valuation of barrier options
Austing and Li provide a continuous barrier options pricing formula that fits the volatility smile
‘Hot-start’ initialisation of the Heston model
Serguei Mechkov initialises Heston model’s parameters using probability distributions
Finite difference techniques for arbitrage-free SABR
This paper applies a variety of second-order finite difference schemes to the SABR arbitrage-free density problem and explores alternative formulations.
A mixed Monte Carlo and partial differential equation variance reduction method for foreign exchange options under the Heston–Cox–Ingersoll–Ross model
The paper concerns a hybrid pricing method build upon a combination of Monte Carlo and PDE approach for FX options under the four-factor Heston-CIR model.
The forward smile in local–stochastic volatility models
The Authors introduce a closed-form approximation for the forward implied volatilities.
Numerical solution of the Hamilton–Jacobi–Bellman formulation for continuous-time mean–variance asset allocation under stochastic volatility
The paper deals with robust and accurate numerical solution methods for the nonlinear Hamilton–Jacobi–Bellman partial differential equation (PDE), which describes the dynamic optimal portfolio selection problem.
Valuation of options on discretely sampled variance: a general analytic approximation
In this paper the authors provide a comprehensive treatment of the discretization effect under general stochastic volatility dynamics.
Accelerated trinomial trees applied to American basket options and American options under the Bates model
This paper introduces accelerated trinomial trees, a novel efficient lattice method for the numerical pricing of derivative securities.
B-spline techniques for volatility modeling
In this paper the use of B-splines is advocated for volatility modeling within the calibration of stochastic local volatility (SLV) models and for the parameterization of an arbitrage-free implied volatility surface calibrated to sparse option data.
Isolating a risk premium on the volatility of volatility
Lorenzo Ravagli shows how to exploit a risk premium embedded in the vol of vol in out-of-the-money options
A novel Fourier transform B-spline method for option pricing
By means of B-spline interpolation, this paper provides an accurate closed-form representation of the option price under an inverse Fourier transform.
Greeks with continuous adjoints: fast to code, fast to run
Marzio Sala and Vincent Thiery show the derivation of the continuous adjoint problem for PDEs
Heston model: shifting on the volatility surface
Stochastic volatility model combining Heston vol model and CIR++