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Implied Volatility Functions: A Reprise

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  • Joshua Rosenberg

Abstract

Dumas, Fleming, Whaley (DFW, 1998) find that option models based on deterministic volatility functions (DVF) perform poorly because the estimated volatility function is unstable over time. DFW provide evidence that the DVF changes significantly on a weekly basis.

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File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99027.pdf
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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 99-027.

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Date of creation: Jul 1999
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Handle: RePEc:fth:nystfi:99-027

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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/
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References

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  1. Yacine Aït-Sahalia & Andrew W. Lo, . "Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices," CRSP working papers 332, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  2. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December.
  3. Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-51, October.
  4. George Skiadopoulos & Stewart Hodges & Les Clewlow, 2000. "The Dynamics of the S&P 500 Implied Volatility Surface," Review of Derivatives Research, Springer, vol. 3(3), pages 263-282, October.
  5. Barone-Adesi, Giovanni & Whaley, Robert E, 1987. " Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-20, June.
  6. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
  7. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
  8. Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
  9. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  10. Bernard Dumas & Jeff Fleming & Robert E. Whaley, 1998. "Implied Volatility Functions: Empirical Tests," Journal of Finance, American Finance Association, vol. 53(6), pages 2059-2106, December.
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Cited by:
  1. David Heath & Eckhard Platen, 2004. "Understanding the Implied Volatility Surface for Options on a Diversified Index," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 55-77, March.
  2. Matthias Fengler, 2010. "Option data and modeling BSM implied volatility," University of St. Gallen Department of Economics working paper series 2010 2010-32, Department of Economics, University of St. Gallen.
  3. Li, Minqiang, 2008. "Price Deviations of S&P 500 Index Options from the Black-Scholes Formula Follow a Simple Pattern," MPRA Paper 11530, University Library of Munich, Germany.
  4. Laurini, Márcio P., 2007. "Imposing No-Arbitrage Conditions In Implied Volatility Surfaces Using Constrained Smoothing Splines," Ibmec Working Papers wpe_89, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  5. Joshua Rosenberg, 2000. "Asset Pricing Puzzles: Evidence from Options Markets," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-025, New York University, Leonard N. Stern School of Business-.
  6. Bedendo, Mascia & Hodges, Stewart D., 2009. "The dynamics of the volatility skew: A Kalman filter approach," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1156-1165, June.
  7. Matthias Fengler & Wolfgang Härdle & Enno Mammen, 2005. "A Dynamic Semiparametric Factor Model for Implied Volatility String Dynamics," SFB 649 Discussion Papers SFB649DP2005-020, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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