Stochastic Volatility Modeling

Lorenzo Bergomi

January 5, 2016 by Chapman and Hall/CRC
Reference - 88 B/W Illustrations
ISBN 9781482244069 - CAT# K23465
Series: Chapman and Hall/CRC Financial Mathematics Series

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Features

  • Covers forward-start options, variance swaps, options on realized variance, timer options, VIX futures and options, and daily cliquets
  • Includes an in-depth study of the dynamics of the local volatility model, its carry P&L, and its delta
  • Surveys the uncertain volatility model and its usage
  • Discusses the parametrization of local-stochastic volatility and multi-asset stochastic volatility models
  • Characterizes the links between static and dynamics features of stochastic volatility models
  • Contains a wealth of unpublished results and insights
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Summary

Packed with insights, Lorenzo Bergomi’s Stochastic Volatility Modeling explains how stochastic volatility is used to address issues arising in the modeling of derivatives, including:

  • Which trading issues do we tackle with stochastic volatility?
  • How do we design models and assess their relevance?
  • How do we tell which models are usable and when does calibration make sense?

This manual covers the practicalities of modeling local volatility, stochastic volatility, local-stochastic volatility, and multi-asset stochastic volatility. In the course of this exploration, the author, Risk’s 2009 Quant of the Year and a leading contributor to volatility modeling, draws on his experience as head quant in Société Générale’s equity derivatives division. Clear and straightforward, the book takes readers through various modeling challenges, all originating in actual trading/hedging issues, with a focus on the practical consequences of modeling choices.