2013/02/28 by Alessandro Gnoatto, Gnoatto, Alessandro, Martino Grasselli +1
Economics, Econometrics and Finance · #91G20 #91G30 #Complex Systems and Time Series Analysis #Computational Finance (q-fin.CP) #Economic theories and models #FOS: Economics and business #FOS: Mathematics #Pricing of Securities (q-fin.PR) #Probability (math.PR) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1302.7246
openalex publication_date 2013/02/28 · openalex created_date 2022/08/22 · openalex updated_date 2026/07/28
We introduce a tractable multi-currency model with stochastic volatility and\ncorrelated stochastic interest rates that takes into account the smile in the\nFX market and the evolution of yield curves. The pricing of vanilla options on\nFX rates can be performed effciently through the FFT methodology thanks to the\naffinity of the model Our framework is also able to describe many non trivial\nlinks between FX rates and interest rates: a second calibration exercise\nhighlights the ability of the model to fit simultaneously FX implied\nvolatilities while being coherent with interest rate products.\n