TY - JOUR
T1 - An integral representation of elasticity and sensitivity for stochastic volatility models
AU - Cui, Zhenyu
AU - Nguyen, Duy
AU - Park, Hyungbin
N1 - Publisher Copyright:
© 2017, Springer-Verlag GmbH Germany.
PY - 2018/3/1
Y1 - 2018/3/1
N2 - This paper presents a generic probabilistic approach to study elasticities and sensitivities of financial quantities under stochastic volatility models. We describe the shock elasticity, the quantile sensitivity and the vega value of cash flows with respect to perturbation of the volatility function of the model. The main contribution is to establish explicit formulae for these elasticities and sensitivities based on a novel application of the exponential measure change technique in Palmowski and Rolski (Bernoulli 8(6):767–785 2002). We carry out explicit calculations for the Heston model and the 3/2 stochastic volatility model, and derive explicit expressions in terms of model parameters.
AB - This paper presents a generic probabilistic approach to study elasticities and sensitivities of financial quantities under stochastic volatility models. We describe the shock elasticity, the quantile sensitivity and the vega value of cash flows with respect to perturbation of the volatility function of the model. The main contribution is to establish explicit formulae for these elasticities and sensitivities based on a novel application of the exponential measure change technique in Palmowski and Rolski (Bernoulli 8(6):767–785 2002). We carry out explicit calculations for the Heston model and the 3/2 stochastic volatility model, and derive explicit expressions in terms of model parameters.
KW - Elasticity
KW - Exponential measure change
KW - Greeks
KW - Growth-rate risk
KW - Quantile
KW - Sensitivity
KW - Stochastic volatility models
UR - http://www.scopus.com/inward/record.url?scp=85032024110&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85032024110&partnerID=8YFLogxK
U2 - 10.1007/s11579-017-0203-2
DO - 10.1007/s11579-017-0203-2
M3 - Article
AN - SCOPUS:85032024110
SN - 1862-9679
VL - 12
SP - 249
EP - 274
JO - Mathematics and Financial Economics
JF - Mathematics and Financial Economics
IS - 2
ER -