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A potentially interesting paper Summary:

Discussion for Chen and Gau (2004) : Pricing Currency Options under Stochastic Volatility by Yaw-huei Wang. A potentially interesting paper Summary: Motivation: A lognormal density fails to fit market prices.

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A potentially interesting paper Summary:

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  1. Discussion for Chen and Gau (2004) : Pricing Currency Options under Stochastic Volatilityby Yaw-huei Wang • A potentially interesting paper • Summary: • Motivation: A lognormal density fails to fit market prices. • Objective: Comparing the performance of a constant and a stochastic volatility model for FX option pricing. • Models: Garman & Kohlhagen v.s. Heston • Findings: • (1) Heston’s model outperforms • (2) Speed of volatility mean reverting for FX is faster • (3) FX exhibits less negatively skewed.

  2. Contribution: comparing pricing performance and economic meanings implied in estimated parameters. • Questions & Comments: • Reader-friendly presentation in the article. • Sophisticated data processing. • Synchronization, Transformation from American to European, Abandon short-time-to-maturity data … etc. • Comparison of models’ performance is interesting. But, comparison of economic meanings implied in a good model could be more interesting, particularly for different assets. • Does jumps matter? Jumps in returns or volatility, or both? • Empirical implementations of a jump stochastic volatility model for pricing FX options could be interesting?

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