A BNS-type stochastic volatility model with two-sided jumps, with applications to FX options pricing

We present an extension of the BNS stochastic volatility model, incorporating two- sided jumps in the asset price process. The characteristic function of the log-price process is computed, enabling us to calibrate efficiently to plain vanilla products by means of Fourier pricing methods. Finally, we present as an application of the two- sided BNS model the calibration to FX option prices, where a model with two-sided jumps is more suitable due to the symmetric nature of the FX markets. We find that the two-sided BNS model calibrates better to FX smiles than the classical BNS model with one-directional jumps, even in a setting with equal degrees of freedom.      «

We present an extension of the BNS stochastic volatility model, incorporating two- sided jumps in the asset price process. The characteristic function of the log-price process is computed, enabling us to calibrate efficiently to plain vanilla products by means of Fourier pricing methods. Finally, we present as an application of the two- sided BNS model the calibration to FX option prices, where a model with two-sided jumps is more suitable due to the symmetric nature of the FX markets. We find t...     »