Double Gamma Stochastic Volatility Model in Discrete Time
21 Pages Posted: 22 Apr 2017
Date Written: July 21, 2010
In an affine term structure framework we propose a discrete time stochastic volatility model. We derive the characteristic function of the log swap rate under swap measure. Having the characteristic function, we employ the Fourier cosine (COS) technique to price swaptions. Using data on tweleve years of swap rates and swaption premiums, model parameters are estimated using an unscented Kalman filter algorithm.
Keywords: Affine Term Structure Models; Characteristic Function; FFT; Swaptions; Gamma Process
JEL Classification: C
Suggested Citation: Suggested Citation