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Mathematics and Financial Economics

Erschienen in:

24.10.2017

An integral representation of elasticity and sensitivity for stochastic volatility models

verfasst von: Zhenyu Cui, Duy Nguyen, Hyungbin Park

Erschienen in: Mathematics and Financial Economics | Ausgabe 2/2018

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Abstract

This paper presents a generic probabilistic approach to study elasticities and sensitivities of financial quantities under stochastic volatility models. We describe the shock elasticity, the quantile sensitivity and the vega value of cash flows with respect to perturbation of the volatility function of the model. The main contribution is to establish explicit formulae for these elasticities and sensitivities based on a novel application of the exponential measure change technique in Palmowski and Rolski (Bernoulli 8(6):767–785 2002). We carry out explicit calculations for the Heston model and the 3/2 stochastic volatility model, and derive explicit expressions in terms of model parameters.

Vorheriger Artikel Disentangling price, risk and model risk: V&R measures

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See Sect. 3.1 for the single volatility factor case, and see Appendix A for a discussion on the possible extension to the case of multivariate volatility factors.

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Titel: An integral representation of elasticity and sensitivity for stochastic volatility models
verfasst von: Zhenyu Cui
Duy Nguyen
Hyungbin Park
Publikationsdatum: 24.10.2017
Verlag: Springer Berlin Heidelberg
Erschienen in: Mathematics and Financial Economics / Ausgabe 2/2018
Print ISSN: 1862-9679
Elektronische ISSN: 1862-9660
DOI: https://doi.org/10.1007/s11579-017-0203-2

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