To provide a method and a system for simulating the variation of volatility of a price of a specific option to an original financial product.
A volatility curved surface model having at least one curved surface parameter is provided together with a set of volatility of a plurality of options to the original financial product. The set of volatility is analyzed, the initial values of each curved surface parameter are judged and a curved surface approximating the set of volatility of ordinary market conditions is defined by the initial values when the initial values are used in the curved surface model. The value of the curved surface parameter is changed by using an appropriate variation function. Simulation of unusual market conditions can be performed by adjusting a parameter value and introducing the offset, skew and period of the volatility curved surface and variation of other parameters before applying the curved surface parameter to the model.
MAGHAKIAN ARTHUR
Kazuo Abe