Stochastic volatility fx options
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Please refer to this blog post for more information. This paper investigates the consequences of stochastic volatility for pricing spot foreign currency options.
23. How to Trade Stochastics Like the Pro's DoA diffusion model for exchange rates with stochastic volatility is proposed and estimated. The parameter estimates are then used to price foreign currency options and the predictions are compared to observed market prices. We find that allowing volatility to be stochastic results in a much better fit to the empirical distribution of the Canada-U.
Financial support for this paper was provided by the Social Sciences and Humanities Research Council of Canada under Grant This paper has benefited from comments by Ken Singleton and from workshop presentations at the National Bureau of Economic Research, Berkeley, and Stanford.
Ken Vetzal provided excellent research assistance.
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Pricing of foreign exchange options under the Heston stochastic volatility model and CIR interest rates: Quantitative Finance: Vol 13, No 6
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Valuation of currency options with stochastic volatility
Journal of Econometrics Volume 45, Issues 1—2 , July—August , Pages Author links open the author workspace. University of Toronto, Toronto M5S 1A1, Canada.
Abstract This paper investigates the consequences of stochastic volatility for pricing spot foreign currency options. Check if you have access through your login credentials or your institution.
Stochastic Modeling
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