AbstractAn important purpose of derivatives modelling is to provide practitioners with actionable measures of risk. The Black and Scholes volatility remains a favourite on trading floors in spite of well-known biases. One popular extension is to make volatility a function of time and the underlying asset price, as in local volatility models. This paper presents an alternative extension, which produces volatility-like quantities to address the skews and smiles found in most derivatives markets.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4993.
Date of creation: 01 Dec 2005
Date of revision:
higher-order volatility; higher-order moments; volatility smile; S&P 500;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Carey, Alexander, 2006. "Path-conditional forward volatility," MPRA Paper 4964, University Library of Munich, Germany.
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- Carey, Alexander, 2010. "Higher-order volatility: time series," MPRA Paper 21087, University Library of Munich, Germany.
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