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Bachelier and His Times: A Conversation with Bernard Bru Read chapter Read first chapter

2002 | OriginalPaper | Chapter

Displaced and Mixture Diffusions for Analytically-Tractable Smile Models

Authors : Damiano Brigo, Fabio Mercurio

Published in: Mathematical Finance — Bachelier Congress 2000

Publisher: Springer Berlin Heidelberg

Included in: Professional Book Archive

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We propose two different, classes of analytical models for the dynamics of an asset, price that, respectively lead to skews and smiles in the term structure of implied volatilities. Both classes are based on explicit, SDEs that, admit, unique strong solutions whose marginal densities are also provided. We then consider some particular examples in each class and explicitly calculate the European option prices implied by these models.

previous chapter On the Term Structure of Futures and Forward Prices
next chapter The Theory of Good-Deal Pricing in Financial Markets
Metadata
Title
Displaced and Mixture Diffusions for Analytically-Tractable Smile Models
Authors
Damiano Brigo
Fabio Mercurio
Copyright Year
2002
Publisher
Springer Berlin Heidelberg
Book
Mathematical Finance — Bachelier Congress 2000

Print ISBN: 978-3-642-08729-5

Electronic ISBN: 978-3-662-12429-1

Copyright Year: 2002

DOI
https://doi.org/10.1007/978-3-662-12429-1_8