Stochastic Skew in Currency Options

By Peter P. Carr, Liuren Wu. 2007

331 citations recorded by the source corpus.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/75bfb2c58a0d3c8586b41ffe281d8963e1a2bcb5

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

ASYMPTOTICS OF IMPLIED VOLATILITY IN LOCAL VOLATILITY MODELS (2012, methodology): “Recent years have seen an explosion of models using the method of stochastic time changes to produce ever more versatile models, see for instance Carr et al [8] and Carr and Wu [10].”
MODELING HIGH-FREQUENCY FINANCIAL DATA BY PURE JUMP PROCESSES (2012, background): “…models have been extensively considered and used for general options pricing [Huang and Wu (2004), Broadie and Detemple (2004), Levendorskii (2004), Schoutens (2006), Ivanov (2007)], and for foreign exchange options pricing [Huang and Hung (2005), Daal and Madan (2005), Carr and Wu (2007)].”
Properties of Foreign Exchange Risk Premiums (2012, methodology): “To calculate MFIV we use daily currency option data obtained from JP Morgan comprising 1-month implied volatilities for five points, which is standard in currency markets (Carr and Wu, 2007): at-the-money forward (ATMF), 10-delta call, 10-delta put, 25-delta call, and 25-delta put.(27) To calculate ”
Unspanned Stochastic Volatility and the Pricing of Commodity Derivatives (2009, methodology): “Carr and Wu (2007) and Bakshi, Carr, and Wu (2008) document time-varying skewness of the conditional risk-neutral distribution of currency returns and suggest several models that are able to match this feature.”
Activity Signature Functions for High-Frequency Data Analysis (2010, background): “Pure-jump models have been extensively considered and used for general options pricing (Huang and Wu, 2004; Broadie and Detemple, 2004; Levendorskii, 2004; Schoutens, 2006; Ivanov, 2007), and for foreign exchange options pricing (Huang and Hung, 2005; Daal and Madan, 2005; Carr and Wu, 2007).”
A class of Lévy process models with almost exact calibration to both barrier and vanilla FX options (2010, unknown): “Carr et al. (2002, 2003) and Carr and Wu (2007) show how, in their ability to fit and explain implied volatility surfaces, finite activity Lévy processes are outperformed by infinite activity Lévy processes, which, in turn, are outperformed by time-changed Lévy processes.”
Testing for pure-jump processes for high-frequency data (2015, background): “Pure-jump models have been extensively used for general option pricing [Huang and Wu (2004); Broadie and Detemple (2004); Levendorskĭı (2004); Schoutens (2006); Ivanov (2007)] and for foreign exchange option pricing [Huang and Hung (2005); Daal and Madan (2005); Carr and Wu (2007)].”
Riding on the smiles (2011, unknown): “This is the strategy followed, for example, by Bates (2000), Carr and Wu (2007) and Christoffersen et al. (2009).”
Crash Risk in Currency Markets (2015, unknown): “Jorion (1995), Carr and Wu (2007), and Corte, Sarno, and Tsiakas (2011) study the features of currency implied volatilities pre-crisis.”
A multifactor volatility Heston model (2008, methodology): “It is indeed a common observation that a single factor diffusive model is not sufficiently flexible to take into account the risk component introduced by the variability of the skew, also known as stochastic skew (see, e.g., Carr and Wu (2004)).”
Theory and Evidence on the Dynamic Interactions between Sovereign Credit Default Swaps and Currency Options (2007, background): “exchange rates can move discontinuously (Bates, 1996; Carr and Wu, forthcoming; Daal and Madan, 2005; Bakshi et al., 2005).”
The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work So Well (2009, unknown): “…Benzoni and Lund (2002) and Chernov and Ghysels (2000) use an E¢ cient Method of Moments approach, Pan (2002) uses the Generalized Method of Moments, Carr and Wu (2007) use a Kalman lter approach, and Christo¤ersen, Jacobs, and Mimouni (2008) and Johannes, Polson and Stroud (2008) use…”
Stochastic Risk Premiums, Stochastic Skewness in Currency Options, and Stochastic Discount Factors in International Economies (2008, background): “Allowing the three risk premium rates (Zt ,Yht ,Y f t ) to be stochastic produces both stochastic volatility and stochastic skewness in currency returns.”
Rare Disasters and Exchange Rates (2008, unknown): “Finally, Colacito (2006) and Colacito and Croce (2006) apply Bansal and Yaron (2004)’s model with Epstein-Zin-Weil preferences to international economics. Bansal and Shaliastovich (2007), using a two-country setting, rely on a perfect cross-country correlation among shocks to the long run components”