Implied Volatility at Expiration
AbstractThe main result of the paper is a formula for zero time-to-maturity limit of implied volatilities of European options under a broad class of stochastic volatility models. Based on this formula, we propose a closed-form approximation of the implied volatility smile. Numerical examples suggest that our approximation is accurate in the absence of mean-reversion in stochastic volatility.
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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 08-04.
Length: 26 pages
Date of creation: Nov 2004
Date of revision: Jan 2008
Option pricing; stochastic volatility; implied volatility; short-maturity asymptotics.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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- Cristian Homescu, 2011. "Implied Volatility Surface: Construction Methodologies and Characteristics," Papers 1107.1834, arXiv.org.
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