Explicit implied vols for multifactor local-stochastic vol models
Year: 2013
Type: preprint
Abstract: We consider an asset whose risk-neutral dynamics are described by a general class of local-stochastic volatility models and derive a family of asymptotic expansions for European-style option prices and implied volatilities. Our implied volatility expansions are explicit; they do not require any special functions nor do they require numerical integration. To illustrate the accuracy and versatility of our method, we implement it under five different model dynamics: CEV local volatility, quadratic local volatility, Heston stochastic volatility, 3/2 stochastic volatility, and SABR local-stochastic volatility.
Source: arXiv (Cornell University)
Institution: University of Bologna
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2281565324