Séminaire: The 4/2 stochastic volatility model and its extensions

19 septembre 2014

23 septembre 2014Paris
Share this:Tweet about this on TwitterShare on FacebookShare on LinkedInShare on Google+

Speaker: Martino Grasselli (University of Padova, and ESILV Paris)

Date: Tuesday, September 23rd, 2014 at 2.00 p.m.

Location: 40 passage de l’Arche, Collines Sud de l’Arche, 92037 Paris la Défense

Room : H309 (A406)

Abstract:

In this talk we consider a new stochastic volatility model that includes as special cases the square
root Heston model and the 3/2 model. The new model is analytically tractable and the computation
of the characteristic function of asset prices involves a non trivial extension of known results in
probability. We will use this model as building block in order to develop a multifactor version that
considerably extends the model investigated in De Col et al. (2013) and Baldeaux et al. (2013),
including stochastic interest rates. We will then consider an application to the FX market in order to
price vanilla as well as basket options. We emphasize that our methodology does not require the
existence of a risk neutral probability measure, so the new model is useful in order to explain some
typical drawbacks of Heston-based models (e.g. violation of the Feller condition, existence of risk
neutral measure).

IÉSEG