IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v4y2004i5p489-498.html
   My bibliography  Save this article

Adaptive mixture for a controlled smile: the LT model

Author

Listed:
  • Nadhem Meziou

Abstract

We build here an arbitrage-free model for an equity-type asset that allows the forward volatility surface to be uncertain today and change profiles over time with some stationarity. Sport and forward distributions are both expressed in the same format through convenient lognormal mixtures ensuring consisten recombinations. The underlying spot process is botained as the product of a lognormal and a jump variable that can be easily simulated. Closed-form solutions are dervied for standard and forward-start European options. The model addresses the drawbacks of local volatilitites and is very tractable with respect to jump-discussion and stochastic vol models. It allows to callibrate, as needed, on both cliquet and vanilla options and offers a convenient framework to observe and control volatility surface evolution.

Suggested Citation

  • Nadhem Meziou, 2004. "Adaptive mixture for a controlled smile: the LT model," Quantitative Finance, Taylor & Francis Journals, vol. 4(5), pages 489-498.
    • Handle: RePEc:taf:quantf:v:4:y:2004:i:5:p:489-498
    DOI: 10.1080/14697680400000033
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/14697680400000033
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697680400000033?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:4:y:2004:i:5:p:489-498. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.