Singular Exotic Perturbation

17 Pages Posted: 15 Jun 2021 Last revised: 10 Dec 2021

Date Written: May 1, 2021

Abstract

The Local Stochastic Volatility model is the main model used to take into account the correct pricing and hedging with the volatility dynamic.

We introduce a new methodology that combines Singular perturbation analysis and exotic greek computation. We obtain asymptotic formulae for the LSV impact which work extremely well. Tests are performed on the mostly traded Autocalls in the equity derivatives business.

Keywords: LSV, LV, Singular perturbation, Price adjustment, Exotic greeks, Fast pricing

JEL Classification: C13, C61, C63, G12, G13

Suggested Citation

Monciaud, Florian and Reghai, Adil, Singular Exotic Perturbation (May 1, 2021). Available at SSRN: https://ssrn.com/abstract=3860721 or http://dx.doi.org/10.2139/ssrn.3860721

Florian Monciaud

Independent

Adil Reghai (Contact Author)

ADIA ( email )

211 Corniche
Abu Dhabi
United Arab Emirates

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