FuNVol: A Multi-Asset Implied Volatility Market Simulator using Functional Principal Components and Neural SDEs
We introduce a new approach for generating sequences of implied volatility (IV) surfaces across multiple assets that is faithful to historical prices. We do so using a combination of functional data analysis and neural stochastic differential equations (SDEs) combined with a probability integral transform penalty to reduce model misspecification. We demonstrate that learning the joint dynamics of IV surfaces and prices produces market scenarios that are consistent with historical features and lie within the sub-manifold of surfaces that are essentially free of static arbitrage. Finally, we demonstrate that delta hedging using the simulated surfaces generates profit and loss (P&L) distributions that are consistent with realised P&Ls.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Using Machine Learning and Alternative Data to Predict Movements in Market Risk
Using machine learning and alternative data for the prediction of financial markets has been a popular topic in recent years. Many financial variables such as stock price, historical volatility and trade volume have alre…
Asset ManagementBIG-bench Machine LearningManagementVolatility has to be rough
First, we give an asymptotic expansion of short-dated at-the-money implied volatility that refines the preceding works and proves in particular that non-rough volatility models are inconsistent to a power law of volatili…
Representation of probability distributions with implied volatility and biological rationale
Economic and financial theories and practice essentially deal with uncertain future. Humans encounter uncertainty in different kinds of activity, from sensory-motor control to dynamics in financial markets, what has been…
Implied Probabilities and Volatility in Credit Risk: A Merton-Based Approach with Binomial Trees
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds…
Theory and Applications of Financial Chaos Index
We develop a new stock market index that captures the chaos existing in the market by measuring the mutual changes of asset prices. This new index relies on a tensor-based embedding of the stock market information, which…