Asymptotic Formulas with Error Estimates for Call Pricing Functions and the Implied Volatility at Extreme Strikes
AbstractIn this paper, we obtain asymptotic formulas with error estimates for the implied volatility associated with a European call pricing function. We show that these formulas imply Lee's moment formulas for the implied volatility and the tail-wing formulas due to Benaim and Friz. In addition, we analyze Pareto-type tails of stock price distributions in uncorrelated Hull-White, Stein-Stein, and Heston models and find asymptotic formulas with error estimates for call pricing functions in these models.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0906.0394.
Date of creation: Jun 2009
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