Download This PaperTwo Factor Stochastic Volatility with Embedded Local Volatility
Posted: 23 Mar 2009 Last revised: 7 May 2009
Date Written: March 16, 2009
Abstract
This paper is intended to introduce an extension of the stochastic volatility model introduced by Pat Hagan. It adds to it two important features: a second factor and mean reversion. It is also a response to the smile dynamics problem taking into account very important features.
Keywords: Stochastic volatility, local volatility, approximation formulae
JEL Classification: G12
Suggested Citation: Suggested Citation
Reghai, Adil, Two Factor Stochastic Volatility with Embedded Local Volatility (March 16, 2009). Available at SSRN: https://ssrn.com/abstract=1360962 or http://dx.doi.org/10.2139/ssrn.1360962
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