Speaker: Orcan Ogetbil, Director of Corporate Model Risk at Advanced Technologies of Modeling at Wells Fargo
When building Cross-Currency local volatility models without or with stochastic volatility, one needs to determine local volatility or leverage functions that reprice given FX implied volatility surfaces under given interest rate models for both currencies. Standard approaches are to embed the repricing of the vanilla options in the model and use particle filters or to address the computation of the needed conditional expectations through PDE methods.
In this talk, we present alternative methods that can be directly implemented purely through local computations and standard MC simulations. Such methods could be more easily integrated within standard MC simulation frameworks, do not require the development of new code and methods, and also run in higher dimensions where PDE methods are no longer feasible. First, we will present the models covered. Second, we will present the conditional expectations to be computed, derived from extended Dupire’s formulas. Third, we will present how to compute such expectations through standard MC simulations (and regressions, for the leverage function). Finally, we will present numerical results from calibration and repricing with FX and interest rate market data from 2020. This is joint work with Narayan Ganesan and Bernhard Hientzsch.
Orcan Ogetbil is a director of Corporate Model Risk at Advanced Technologies of Modeling group within Wells Fargo. His work focuses on building and implementing mathematical finance models and tools for application in model validation space. During his tenure as a practitioner, Orcan studied pricing and risk models and methodologies associated with several asset classes, including equity, FX, fixed income, commodity; and utilized them in valuation and validation testing. Orcan received his PhD in theoretical physics from Penn State University with his research specializing in deSitter solutions of N=2 supergravity. In his spare time, Orcan enjoys traveling with his boys, playing with his band, and long distance running.
September 29, 2022
5 pm – 6 pm