Calibration to FX Triangles of the 4/2 Model Under the Benchmark Approach

Alessandro Gnoatto, Martino Grasselli () and Eckhard Platen ()
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Martino Grasselli: Dipartimento di Matematica - Università degli Studi di Padova

No 06/2021, Working Papers from University of Verona, Department of Economics

Abstract: We calibrate a novel multifactor stochastic volatility model that includes as special cases the Heston-based model of De Col et al. (2013) and the 3/2-based model of Baldeaux et al. (2015). Using a dataset on vanilla option quotes in a triangle of currencies, we find that the risk neutral approach typically fails for the calibrated model, in line with the results of Baldeaux et al. (2015).

Keywords: Benchmark approach; Fourier inversion; stochastic volatility; Forex. (search for similar items in EconPapers)
JEL-codes: C6 C63 G1 G12 G13 (search for similar items in EconPapers)
Pages: 28
Date: 2021-04
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Citations: View citations in EconPapers (2)

Published in Decisions in Economics and Finance - Accepted

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Related works:
Journal Article: Calibration to FX triangles of the 4/2 model under the benchmark approach (2022)
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