The Dynamics of the S&P 500 Implied Volatility Surface
AbstractThis empirical study is motivated by the literature on “smile-consistent” arbitrage pricing with stochastic volatility. We investigate the number and shape of shocks that move implied volatility smiles and surfaces by applying Principal Components Analysis. Two components are identified under a variety of criteria. Subsequently, we develop a “Procrustes” type rotation in order to interpret the retained components. The results have implications for both option pricing and hedging and for the economics of option pricing. Copyright Kluwer Academic Publishers 2000
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Bibliographic InfoArticle provided by Springer in its journal Review of Derivatives Research.
Volume (Year): 3 (2000)
Issue (Month): 3 (October)
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Web page: http://www.springerlink.com/link.asp?id=102989
volatility smile; volatility surface; implied volatility; principal components analysis;
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