Calibration to FX triangles of the 4/2 model under the benchmark approach

Gnoatto, A; Grasselli, M; Platen, E

Calibration to FX triangles of the 4/2 model under the benchmark approach

Gnoatto, A Grasselli, M Platen, E

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Publisher:: Springer Science and Business Media LLC
Publication Type:: Journal Article
Citation:: Decisions in Economics and Finance, 2022, 45, (1), pp. 1-34
Issue Date:: 2022-05-06

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Field	Value	Language
dc.contributor.author	Gnoatto, A
dc.contributor.author	Grasselli, M
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123
dc.date.accessioned	2022-12-09T06:05:53Z
dc.date.available	2022-12-09T06:05:53Z
dc.date.issued	2022-05-06
dc.identifier.citation	Decisions in Economics and Finance, 2022, 45, (1), pp. 1-34
dc.identifier.issn	1593-8883
dc.identifier.issn	1129-6569
dc.identifier.uri	http://hdl.handle.net/10453/164269
dc.description.abstract	We calibrate a novel multifactor stochastic volatility model that includes as special cases the Heston-based model of De Col et al. (J Bank Finance 37(10):3799–3818, 2013) and the 3/2-based model of Baldeaux et al. (J Bank Finance 53:34–48, 2015). Using a dataset on vanilla option quotes in a triangle of currencies, we find that the risk neutral approach typically fails for the calibrated model, in line with the results of Baldeaux et al. (2015).
dc.language	en
dc.publisher	Springer Science and Business Media LLC
dc.relation.ispartof	Decisions in Economics and Finance
dc.relation.isbasedon	10.1007/s10203-021-00330-1
dc.rights	info:eu-repo/semantics/openAccess
dc.subject	01 Mathematical Sciences, 15 Commerce, Management, Tourism and Services
dc.subject.classification	Economic Theory
dc.title	Calibration to FX triangles of the 4/2 model under the benchmark approach
dc.type	Journal Article
utslib.citation.volume	45
utslib.for	01 Mathematical Sciences
utslib.for	15 Commerce, Management, Tourism and Services
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
utslib.copyright.status	open_access	*
pubs.consider-herdc	false
dc.date.updated	2022-12-09T06:05:51Z
pubs.issue	1
pubs.publication-status	Accepted
pubs.volume	45
utslib.citation.issue	1

Abstract:

We calibrate a novel multifactor stochastic volatility model that includes as special cases the Heston-based model of De Col et al. (J Bank Finance 37(10):3799–3818, 2013) and the 3/2-based model of Baldeaux et al. (J Bank Finance 53:34–48, 2015). Using a dataset on vanilla option quotes in a triangle of currencies, we find that the risk neutral approach typically fails for the calibrated model, in line with the results of Baldeaux et al. (2015).

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http://hdl.handle.net/10453/164269