Double Gamma Stochastic Volatility Model in Discrete Time

21 Pages Posted: 22 Apr 2017

See all articles by Ali Hirsa

Ali Hirsa

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

Massoud Heidari

Caspian Capital Management, LLC

Dilip B. Madan

University of Maryland

Date Written: July 21, 2010

Abstract

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

Hirsa, Ali and Heidari, Massoud and Madan, Dilip B., Double Gamma Stochastic Volatility Model in Discrete Time (July 21, 2010). Available at SSRN: https://ssrn.com/abstract=2955794 or http://dx.doi.org/10.2139/ssrn.2955794

Ali Hirsa (Contact Author)

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States

HOME PAGE: http://ieor.columbia.edu/ali-hirsa

Massoud Heidari

Caspian Capital Management, LLC ( email )

New York, NY 10151
United States
212-703-0300 (Phone)
212-703-0310 (Fax)

Dilip B. Madan

University of Maryland

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