The Study of Stochastic Local Volatility Model of Target Redemption Forward

• Main Authors: LIN,JENG-YA, 林正亞
• Other Authors: Chang,Yi-Ping
• Format: Others
• Language: zh-TW
• Published: 2016
• Online Access: http://ndltd.ncl.edu.tw/handle/uqrkcb

碩士 === 東吳大學 === 財務工程與精算數學系 === 104 === This article refers to Ren et al. (2007) the stochastic local volatility model to describe the dynamic model of the foreign exchange. We used foreign exchange option implied volatility from market data with loss function approach to calibration parameter of stochastic volatility model. We used foreign exchange option implied volatility from market data with Andersen and Brotherton -Ratcliffe (1998), which refers relationship between implied volatility and local volatility function, with the cubic spline interpolation to calibration local volatility model. We refers to Van der Stoep et al. (2014) used Monte-Carlo simulation with two methods to calculate leverage function. One methods is moving averages method and the other one is quadratic regression method. The results show that using quadratic regression method to calculate leverage function better able to reflect the foreign exchange implied volatility. Finally, we used stochastic local volatility model to pricing of Target Redemption Forward.