Calibration and Option Pricing with Stochastic Volatility and Double Exponential Jumps
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arXiv
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| Autori principali: | , , , |
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| Natura: | Preprint |
| Pubblicazione: |
2025
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| _version_ | 1866912588267257856 |
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| author | Agazzotti, Gaetano Rinella, Claudio Aglieri Aguilar, Jean-Philippe Kirkby, Justin Lars |
| author_facet | Agazzotti, Gaetano Rinella, Claudio Aglieri Aguilar, Jean-Philippe Kirkby, Justin Lars |
| contents | This work examines a stochastic volatility model with double-exponential jumps in the context of option pricing. The model has been considered in previous research articles, but no thorough analysis has been conducted to study its quality of calibration and pricing capabilities thus far. We provide evidence that this model outperforms challenger models possessing similar features (stochastic volatility and jumps), especially in the fit of the short term implied volatility smile, and that it is particularly tractable for the pricing of exotic options from different generations. The article utilizes Fourier pricing techniques (the PROJ method and its refinements) for different types of claims and several generations of exotics (Asian options, cliquets, barrier options, and options on realized variance), and all source codes are made publicly available to facilitate adoption and future research. The results indicate that this model is highly promising, thanks to the asymmetry of the jumps distribution allowing it to capture richer dynamics than a normal jump size distribution. The parameters all have meaningful econometrics interpretations that are important for adoption by risk-managers. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2502_13824 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Calibration and Option Pricing with Stochastic Volatility and Double Exponential Jumps Agazzotti, Gaetano Rinella, Claudio Aglieri Aguilar, Jean-Philippe Kirkby, Justin Lars Pricing of Securities 60G51, 60G46, 60E10, 91G15, 91G20, 91G30 This work examines a stochastic volatility model with double-exponential jumps in the context of option pricing. The model has been considered in previous research articles, but no thorough analysis has been conducted to study its quality of calibration and pricing capabilities thus far. We provide evidence that this model outperforms challenger models possessing similar features (stochastic volatility and jumps), especially in the fit of the short term implied volatility smile, and that it is particularly tractable for the pricing of exotic options from different generations. The article utilizes Fourier pricing techniques (the PROJ method and its refinements) for different types of claims and several generations of exotics (Asian options, cliquets, barrier options, and options on realized variance), and all source codes are made publicly available to facilitate adoption and future research. The results indicate that this model is highly promising, thanks to the asymmetry of the jumps distribution allowing it to capture richer dynamics than a normal jump size distribution. The parameters all have meaningful econometrics interpretations that are important for adoption by risk-managers. |
| title | Calibration and Option Pricing with Stochastic Volatility and Double Exponential Jumps |
| topic | Pricing of Securities 60G51, 60G46, 60E10, 91G15, 91G20, 91G30 |
| url | https://arxiv.org/abs/2502.13824 |