|Pricing Partners Introduced a New Derivatives Pricing Model Combining Local and Stochastic Volatility - Nov 2011|
Pricing Partners, the world leader in OTC derivatives pricing analytics, mathematical models and independent valuations, announced today that its award winning Price-it© Library now contains a model combining local and stochastic volatility.
A local volatility model allows calibrating virtually at any strike and maturity provided the volatility surface which does not have any arbitrage. But its smile dynamics is not very realistic. A stochastic volatility like the Heston model generates, on the contrary, a realistic smile dynamics, but does not calibrate perfectly on all strikes and maturities. Combining the best features of the two models in a local and stochastic volatility model provides a new model that has both a realistic smile dynamics and can fit all strikes and maturities. Therefore, Pricing Partners introduced this model, an extension of the Heston model, meanwhile, where the volatility contains a local volatility term.
Eric Benhamou, CEO of Pricing Partners comments: “With this new local and stochastic volatility model, Price-it© library stays above the curve in terms of derivatives pricing models. The “generic” feature of this model allows being adapted to fx, equity but also commodity assets easily. I am sure that our users will be excited with this new technology.”
About Pricing Partners
Set up by former professionals of the trading industry, Pricing Partners offers accurate solutions for derivatives products valuation, pricing tools and risk analytics with full transparency.
Pricing Partners delivers:
Pricing Partners offers cover commodity, credit, equity, fixed income, fx, funds, inflation, interest rates, life insurance and hybrids OTC products. They are widely adopted by investment banks, asset management firms, hedge funds, corporations, pension funds, fund administrators and audit firms.
Pricing Partners holds offices in Paris, London, Singapore and Hong Kong. Its solutions have been ranked the overall winner in Pricing and Analytics by Structured Products Magazine in 2010 and 2011.
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