Advanced Search
MyIDEAS: Login

Of Smiles and Smirks: A Term-Structure Perspective

Contents:

Author Info

  • Sanjiv R. Das
  • Rangarajan K. Sundaram

Abstract

Empirical anamolies in the Black-Scholes model have been widely documented in the Finance literature. Pattern in these anamolies (for instance, the behavior of the volatility smile or of unconditional returns at different maturities) have also been widely documented. Theoretical efforts in the literature at addressing these anamolies have largely centered around extensions of the basic Black-Scholes model. Two approaches have become especially popular in this context ' introducing jumps into the return process, and allowing volatility to be stochastic. This paper employs commonly used versions of these two classes of models to examine the extent to which the models are theoretically capable of resolving the observed anamolies. We focus especially on the possible 'term-structures' of skewness, kurtosis, and the implied volatility smile that can rise under each model. Our central finding is that each model exhibits moment patterns and implied volatility smiles that are consistent with some of the observed anamolies, but not with others. In sum, neither class of models constitutes and adequate explanation of the empirical evidence, although the stochastic volatility models fair better than jumps in this regard.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-024.

as in new window
Length:
Date of creation: 03 Feb 1998
Date of revision:
Handle: RePEc:fth:nystfi:98-024

Contact details of provider:
Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

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

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

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:fth:nystfi:98-024. 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: (Thomas Krichel).

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.