Valuations provider Pricing Partners has added new perturbation methods to its solution in order to provide quick calculation of analytical formulas for stochastic volatility models with time dependent parameters. The vendor claims this new offering is significantly faster than traditional, or Fourier, calculation methods for stochastic volatility models.
Pricing Partners reckons the calculation method is particularly relevant in this crisis environment since markets volatility reached record levels and must be taken into account by stochastic volatility models. Eric Benhamou, CEO of Pricing Partners, says: “In these disrupted periods, we must redouble our efforts to improve our understanding of risk.”
The methods have been developed in collaboration with Professor Emmanuel Gobet from the Jean Kuntzmann research centre of the University of Grenoble. They use a technique for the explicit calculation of analytical formulas with perturbation methods and Malliavin calculus. According to the vendor, they allow the calculation of approximated formulas in more realistic models such as local volatility models with jumps and stochastic volatility models.
Subscribe to our newsletter