Exponentiation of conditional expectations under stochastic volatility
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- dc.contributor.author Alòs, Elisa
- dc.contributor.author Gatheral, Jim
- dc.contributor.author Radoicic, Rados
- dc.date.accessioned 2024-02-19T07:24:56Z
- dc.date.available 2024-02-19T07:24:56Z
- dc.date.issued 2020
- dc.description.abstract We use the Itô Decomposition Formula (see Alòs (2012)) to express certain conditional expectations as exponentials of iterated integrals. As one application, we compute an exact formal expression for the leverage swap for any stochastic volatility model expressed in forward variance form. As another, we show how to extend the Bergomi Guyon expansion to all orders in volatility of volatility. Finally, we compute exact expressions under rough volatility, obtaining in particular the fractional Riccati equation for the rough Heston characteristic function. As a corollary, we compute a closed-form expression for the leverage swap in the rough Heston model which can be used for fast calibration.
- dc.format.mimetype application/pdf
- dc.identifier.citation Alos E, Gatheral J, Radoicic R. Exponentiation of conditional expectations under stochastic volatility. Quant Finance. 2020;20(1):13-27. DOI: 10.2139/ssrn.2983180
- dc.identifier.doi http://dx.doi.org/10.2139/ssrn.2983180
- dc.identifier.issn 1469-7688
- dc.identifier.uri http://hdl.handle.net/10230/59134
- dc.language.iso eng
- dc.publisher Taylor & Francis
- dc.relation.ispartof Quantitative Finance. 2020;20(1):13-27.
- dc.rights © This is an Accepted Manuscript of an article published by Taylor & Francis in Quantitative Finance on 21 Aug 2019, available online: http://www.tandfonline.com/10.2139/ssrn.2983180
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.subject.keyword Stochastic volatility
- dc.subject.keyword Conditional expectations
- dc.subject.keyword Exponentiation
- dc.subject.keyword Rough volatility
- dc.title Exponentiation of conditional expectations under stochastic volatility
- dc.type info:eu-repo/semantics/article
- dc.type.version info:eu-repo/semantics/acceptedVersion