Implied Calibration of Stochastic Volatility Jump Diffusion Models

Stefano Galluccio and Yann Le Cam
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Stefano Galluccio: BNP Paribas
Yann Le Cam: University of Evry Val d'Essonne

Finance from EconWPA

Abstract: In the context of arbitrage-free modelling of financial derivatives, we introduce a novel calibration technique for models in the affine- quadratic class for the purpose of contingent claims pricing and risk- management. In particular, we aim at calibrating a stochastic volatility jump diffusion model to the whole market volatility surface at any given time. We numerically implement the algorithm and show that the proposed approach is both stable and accurate.

Keywords: Affine-quadratic models; Option pricing; Model Calibration (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets and nep-fin
Date: 2005-10-25
Note: Type of Document - pdf; pages: 40
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0510028

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