Class LIBORCovarianceModelStochasticVolatility

All Implemented Interfaces:
Serializable, LIBORCovarianceModel, LIBORCovarianceModelCalibrateable

public class LIBORCovarianceModelStochasticVolatility extends AbstractLIBORCovarianceModelParametric
Simple stochastic volatility model, using a process \[ d\lambda(t) = \nu \lambda(t) \left( \rho \mathrm{d} W_{1}(t) + \sqrt{1-\rho^{2}} \mathrm{d} W_{2}(t) \right) \text{,} \] where \( \lambda(0) = 1 \) to scale all factor loadings \( f_{i} \) returned by a given covariance model. The model constructed is \( \lambda(t) F(t) \) where \( \lambda(t) \) is the (Euler discretization of the) above process and \( F = ( f_{1}, \ldots, f_{m} ) \) is the factor loading from the given covariance model. The process uses the first two factors of the Brownian motion provided by an object implementing BrownianMotion. This can be used to generate correlations to other objects. If you like to reuse a factor of another Brownian motion use a BrownianMotionView to delegate \( ( \mathrm{d} W_{1}(t) , \mathrm{d} W_{2}(t) ) \) to a different object. The parameter of this model is a joint parameter vector, consisting of the parameter vector of the given base covariance model and appending the parameters ν and ρ at the end. If this model is not calibrateable, its parameter vector is that of the covariance model, i.e., ν and ρ will be not part of the calibration. For an illustration of its usage see the associated unit test.
Version:
1.0
Author:
Christian Fries
See Also:
  • Constructor Details

    • LIBORCovarianceModelStochasticVolatility

      public LIBORCovarianceModelStochasticVolatility(AbstractLIBORCovarianceModelParametric covarianceModel, BrownianMotion brownianMotion, RandomVariable nu, RandomVariable rho, boolean isCalibrateable)
      Create a modification of a given AbstractLIBORCovarianceModelParametric with a stochastic volatility scaling.
      Parameters:
      covarianceModel - A given AbstractLIBORCovarianceModelParametric.
      brownianMotion - An object implementing BrownianMotion with at least two factors. This class uses the first two factors, but you may use BrownianMotionView to change this.
      nu - The initial value for ν, the volatility of the volatility.
      rho - The initial value for ρ the correlation to the first factor.
      isCalibrateable - If true, the parameters ν and ρ are parameters. Note that the covariance model (covarianceModel) may have its own parameter calibration settings.
    • LIBORCovarianceModelStochasticVolatility

      public LIBORCovarianceModelStochasticVolatility(AbstractLIBORCovarianceModelParametric covarianceModel, BrownianMotion brownianMotion, double nu, double rho, boolean isCalibrateable)
      Create a modification of a given AbstractLIBORCovarianceModelParametric with a stochastic volatility scaling.
      Parameters:
      covarianceModel - A given AbstractLIBORCovarianceModelParametric.
      brownianMotion - An object implementing BrownianMotion with at least two factors. This class uses the first two factors, but you may use BrownianMotionView to change this.
      nu - The initial value for ν, the volatility of the volatility.
      rho - The initial value for ρ the correlation to the first factor.
      isCalibrateable - If true, the parameters ν and ρ are parameters. Note that the covariance model (covarianceModel) may have its own parameter calibration settings.
  • Method Details