Department of Economics and Business - Universitat Pompeu Fabra

Title:: A Hull and White formula for a general stochastic volatility jump-diffusion model with applications to the study of the short-time behavior of the implied volatility
Authors:: Elisa Alòs, Jorge A. León, Monique Pontier and Josep Vives
Date:: April 2008
Abstract:: In this paper, generalizing results in Al�s, Le�n and Vives (2007b), we see that the dependence of jumps in the volatility under a jump-diffusion stochastic volatility model, has no effect on the short-time behaviour of the at-the-money implied volatility skew, although the corresponding Hull and White formula depends on the jumps. Towards this end, we use Malliavin calculus techniques for L�vy processes based on L�kka (2004), Petrou (2006), and Sol�, Utzet and Vives (2007).
Keywords:: Hull and White formula, Malliavin calculus, Ito’s formula for the Skorohod integral, jumpdiffusion stochastic volatility models
JEL codes:: G12, G13
Area of Research:: Statistics, Econometrics and Quantitative Methods

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