Advanced Search
MyIDEAS: Login to save this paper or follow this series

Asymptotics of forward implied volatility

Contents:

Author Info

  • Antoine Jacquier
  • Patrick Roome
Registered author(s):

    Abstract

    We prove here a general closed-form expansion formula for forward-start options and the forward implied volatility smile in a large class of models, including Heston and time-changed exponential Levy models. This expansion applies to both small and large maturities and is based solely on the knowledge of the forward characteristic function of the underlying process.The method is based on sharp large deviations techniques, and allows us to recover (in particular) many results for the spot implied volatility smile. In passing we show (i) that the small-maturity exploding behaviour of forward smiles depends on whether the quadratic variation of the underlying is bounded or not, and (ii) that the forward-start date also has to be rescaled in order to obtain non-trivial small-maturity asymptotics.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/1212.0779
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1212.0779.

    as in new window
    Length:
    Date of creation: Dec 2012
    Date of revision: Oct 2013
    Handle: RePEc:arx:papers:1212.0779

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:1212.0779. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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