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A Long-Term Model of the Dynamics of the S&P500 Implied Volatility Surface

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  • Martin le Roux

Abstract

In this paper we present an econometric model of implied volatilities of S&P500 index options. First, we model the dynamics the CBOE VIX index as a proxy for the general level of implied volatilities. We then describe a parametric model of the implied volatility surface for options with a term of up to two years. We show that almost all of the variation in the implied volatility surface can be explained by the VIX index and one or two other uncorrelated factors. Finally, we present a model of the dynamics of these factors.

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  • Martin le Roux, 2007. "A Long-Term Model of the Dynamics of the S&P500 Implied Volatility Surface," North American Actuarial Journal, Taylor & Francis Journals, vol. 11(4), pages 61-75.
    • Handle: RePEc:taf:uaajxx:v:11:y:2007:i:4:p:61-75
    DOI: 10.1080/10920277.2007.10597484
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    Cited by:

    1. Hirbod Assa & Mostafa Pouralizadeh & Abdolrahim Badamchizadeh, 2019. "Sound Deposit Insurance Pricing Using a Machine Learning Approach," Risks, MDPI, vol. 7(2), pages 1-18, April.
    2. Itkin, Andrey, 2015. "To sigmoid-based functional description of the volatility smile," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 264-291.

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