On the short-time behavior of the implied volatility for jump-diffusion models with stochastic volatility
AbstractIn this paper we use Malliavin calculus techniques to obtain an expression for the short-time behavior of the at-the-money implied volatility skew for a generalization of the Bates model, where the volatility does not need to be neither a difussion, nor a Markov process as the examples in section 7 show. This expression depends on the derivative of the volatility in the sense of Malliavin calculus.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 968.
Date of creation: Jun 2006
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Black-Scholes formula; derivative operator; Itô's formula for the Skorohod integral; jump-diffusion stochastic volatility model;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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