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Implied Volatility at Expiration

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Author Info

  • Alexey Medvedev

    (PhD student, Swiss Finance Institute and University of Geneva)

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    Abstract

    The 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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    File URL: http://ssrn.com/abstract=1090200
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    Bibliographic Info

    Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 08-04.

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    Length: 26 pages
    Date of creation: Nov 2004
    Date of revision: Jan 2008
    Handle: RePEc:chf:rpseri:rp0804

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    Web page: http://www.SwissFinanceInstitute.ch
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    Related research

    Keywords: Option pricing; stochastic volatility; implied volatility; short-maturity asymptotics.;

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    Cited by:
    1. Cristian Homescu, 2011. "Implied Volatility Surface: Construction Methodologies and Characteristics," Papers 1107.1834, arXiv.org.

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