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The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work So Well

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Cited by:

  1. Sonali Jain & Jayanth R. Varma & Sobhesh Kumar Agarwalla, 2019. "Indian equity options: Smile, risk premiums, and efficiency," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(2), pages 150-163, February.
  2. Peixuan Yuan, 2022. "Time-Varying Skew in VIX Derivatives Pricing," Management Science, INFORMS, vol. 68(10), pages 7761-7791, October.
  3. Audrino, Francesco & Fengler, Matthias R., 2015. "Are classical option pricing models consistent with observed option second-order moments? Evidence from high-frequency data," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 46-63.
  4. Ben-Zhang Yang & Xiaoping Lu & Guiyuan Ma & Song-Ping Zhu, 2020. "Robust Portfolio Optimization with Multi-Factor Stochastic Volatility," Journal of Optimization Theory and Applications, Springer, vol. 186(1), pages 264-298, July.
  5. Cui, Yiran & del Baño Rollin, Sebastian & Germano, Guido, 2017. "Full and fast calibration of the Heston stochastic volatility model," European Journal of Operational Research, Elsevier, vol. 263(2), pages 625-638.
  6. Cheng, Hung-Wen & Chang, Li-Han & Lo, Chien-Ling & Tsai, Jeffrey Tzuhao, 2023. "Empirical performance of component GARCH models in pricing VIX term structure and VIX futures," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 122-142.
  7. Cheng, Hung-Wen & Lo, Chien-Ling & Tsai, Jeffrey Tzuhao, 2020. "Model specification of conditional jump intensity: Evidence from S&P 500 returns and option prices," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
  8. Giorgia Callegaro & Lucio Fiorin & Martino Grasselli, 2019. "Quantization meets Fourier: a new technology for pricing options," Annals of Operations Research, Springer, vol. 282(1), pages 59-86, November.
  9. Recchioni, M.C. & Sun, Y., 2016. "An explicitly solvable Heston model with stochastic interest rate," European Journal of Operational Research, Elsevier, vol. 249(1), pages 359-377.
  10. Isabel Casas & Helena Veiga, 2021. "Exploring Option Pricing and Hedging via Volatility Asymmetry," Computational Economics, Springer;Society for Computational Economics, vol. 57(4), pages 1015-1039, April.
  11. Gifty Malhotra & R. Srivastava & H. C. Taneja, 2019. "Comparative Study of Two Extensions of Heston Stochastic Volatility Model," Papers 1912.10237, arXiv.org.
  12. Chulmin Kang & Wanmo Kang & Jong Mun Lee, 2017. "Exact Simulation of the Wishart Multidimensional Stochastic Volatility Model," Operations Research, INFORMS, vol. 65(5), pages 1190-1206, October.
  13. Andreou, Panayiotis C. & Charalambous, Chris & Martzoukos, Spiros H., 2010. "Generalized parameter functions for option pricing," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 633-646, March.
  14. Harish S. Bhat & Nitesh Kumar, 2015. "Large-Scale Empirical Tests of the Markov Tree Model," IJFS, MDPI, vol. 3(3), pages 1-39, July.
  15. Gradojevic Nikola, 2016. "Multi-criteria classification for pricing European options," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 20(2), pages 123-139, April.
  16. Yang-Ho Park, 2019. "Variance Disparity and Market Frictions," Finance and Economics Discussion Series 2019-059, Board of Governors of the Federal Reserve System (U.S.).
  17. Kaeck, Andreas & Rodrigues, Paulo & Seeger, Norman J., 2017. "Equity index variance: Evidence from flexible parametric jump–diffusion models," Journal of Banking & Finance, Elsevier, vol. 83(C), pages 85-103.
  18. Aït-Sahalia, Yacine & Amengual, Dante & Manresa, Elena, 2015. "Market-based estimation of stochastic volatility models," Journal of Econometrics, Elsevier, vol. 187(2), pages 418-435.
  19. Chen, Ying & Han, Qian & Niu, Linlin, 2018. "Forecasting the term structure of option implied volatility: The power of an adaptive method," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 157-177.
  20. Cho-Hoi Hui & Tsz-Kin Chung, 2010. "The Risk of Sudden Depreciation of the Euro in the Sovereign Debt Crisis of 2009-2010," Working Papers 252010, Hong Kong Institute for Monetary Research.
  21. Peter Christoffersen & Kris Jacobs & Chayawat Ornthanalai, 2012. "GARCH Option Valuation: Theory and Evidence," CREATES Research Papers 2012-50, Department of Economics and Business Economics, Aarhus University.
  22. Long Teng & Matthias Ehrhardt & Michael Günther, 2017. "Numerical Simulation of the Heston Model under Stochastic Correlation," IJFS, MDPI, vol. 6(1), pages 1-16, December.
  23. Mehrdoust, Farshid & Noorani, Idin & Hamdi, Abdelouahed, 2023. "Two-factor Heston model equipped with regime-switching: American option pricing and model calibration by Levenberg–Marquardt optimization algorithm," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 204(C), pages 660-678.
  24. Bardgett, Chris & Gourier, Elise & Leippold, Markus, 2019. "Inferring volatility dynamics and risk premia from the S&P 500 and VIX markets," Journal of Financial Economics, Elsevier, vol. 131(3), pages 593-618.
  25. Recchioni, Maria Cristina & Iori, Giulia & Tedeschi, Gabriele & Ouellette, Michelle S., 2021. "The complete Gaussian kernel in the multi-factor Heston model: Option pricing and implied volatility applications," European Journal of Operational Research, Elsevier, vol. 293(1), pages 336-360.
  26. Suk Joon Byun & Jung‐Soon Hyun & Woon Jun Sung, 2021. "Estimation of stochastic volatility and option prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(3), pages 349-360, March.
  27. Sang Byung Seo & Jessica A. Wachter, 2019. "Option Prices in a Model with Stochastic Disaster Risk," Management Science, INFORMS, vol. 65(8), pages 3449-3469, August.
  28. Jan Pospíšil & Tomáš Sobotka & Philipp Ziegler, 2019. "Robustness and sensitivity analyses for stochastic volatility models under uncertain data structure," Empirical Economics, Springer, vol. 57(6), pages 1935-1958, December.
  29. Bin Xie & Weiping Li & Nan Liang, 2021. "Pricing S&P 500 Index Options with L\'evy Jumps," Papers 2111.10033, arXiv.org, revised Nov 2021.
  30. Barletta, Andrea & Santucci de Magistris, Paolo & Violante, Francesco, 2019. "A non-structural investigation of VIX risk neutral density," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 1-20.
  31. Tiberiu Socaciu & Bogdan Patrut, 2010. "Algorithm for Financial Derivatives Evaluation in Generalized Double-Heston Model," BRAND. Broad Research in Accounting, Negotiation, and Distribution, EduSoft Publishing, vol. 1(1), pages 5-10, September.
  32. Maria Cristina Recchioni & Yu Sun & Gabriele Tedeschi, 2017. "Can negative interest rates really affect option pricing? Empirical evidence from an explicitly solvable stochastic volatility model," Quantitative Finance, Taylor & Francis Journals, vol. 17(8), pages 1257-1275, August.
  33. Christoffersen, Peter & Heston, Steven & Jacobs, Kris, 2010. "Option Anomalies and the Pricing Kernel," Working Papers 11-17, University of Pennsylvania, Wharton School, Weiss Center.
  34. Yuyang Cheng & Marcos Escobar-Anel & Zhenxian Gong, 2019. "Generalized Mean-Reverting 4/2 Factor Model," JRFM, MDPI, vol. 12(4), pages 1-21, October.
  35. Ilze Kalnina & Dacheng Xiu, 2017. "Nonparametric Estimation of the Leverage Effect: A Trade-Off Between Robustness and Efficiency," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 112(517), pages 384-396, January.
  36. Michael C. Fu & Bingqing Li & Rongwen Wu & Tianqi Zhang, 2020. "Option Pricing Under a Discrete-Time Markov Switching Stochastic Volatility with Co-Jump Model," Papers 2006.15054, arXiv.org.
  37. Kim, See-Woo & Kim, Jeong-Hoon, 2020. "Pricing generalized variance swaps under the Heston model with stochastic interest rates," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 168(C), pages 1-27.
  38. Lucio Fiorin & Wim Schoutens, 2020. "Conic quantization: stochastic volatility and market implied liquidity," Quantitative Finance, Taylor & Francis Journals, vol. 20(4), pages 531-542, April.
  39. Betuel Canhanga & Anatoliy Malyarenko & Jean-Paul Murara & Ying Ni & Sergei Silvestrov, 2017. "Numerical Studies on Asymptotics of European Option Under Multiscale Stochastic Volatility," Methodology and Computing in Applied Probability, Springer, vol. 19(4), pages 1075-1087, December.
  40. Ben-Zhang Yang & Xiaoping Lu & Guiyuan Ma & Song-Ping Zhu, 2019. "Robust portfolio optimization with multi-factor stochastic volatility," Papers 1910.06872, arXiv.org, revised Jun 2020.
  41. Zhenyu Cui & J. Lars Kirkby & Guanghua Lian & Duy Nguyen, 2017. "Integral Representation Of Probability Density Of Stochastic Volatility Models And Timer Options," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(08), pages 1-32, December.
  42. Kaeck, Andreas & Seeger, Norman J., 2020. "VIX derivatives, hedging and vol-of-vol risk," European Journal of Operational Research, Elsevier, vol. 283(2), pages 767-782.
  43. Kang, Boda & Ziveyi, Jonathan, 2018. "Optimal surrender of guaranteed minimum maturity benefits under stochastic volatility and interest rates," Insurance: Mathematics and Economics, Elsevier, vol. 79(C), pages 43-56.
  44. Biao Guo & Qian Han & Hai Lin, 2018. "Are there gains from using information over the surface of implied volatilities?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(6), pages 645-672, June.
  45. Liu, Xiaoquan & Cao, Yi & Ma, Chenghu & Shen, Liya, 2019. "Wavelet-based option pricing: An empirical study," European Journal of Operational Research, Elsevier, vol. 272(3), pages 1132-1142.
  46. Pacati, Claudio & Pompa, Gabriele & Renò, Roberto, 2018. "Smiling twice: The Heston++ model," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 185-206.
  47. Lakshithe Wagalath, 2016. "Feedback effects and endogenous risk in financial markets," Finance, Presses universitaires de Grenoble, vol. 37(2), pages 39-74.
  48. Carpinteyro, Martha & Venegas-Martínez, Francisco & Martínez-García, Miguel Ángel, 2018. "Modeling Returns of Stock Indexes through Fractional Brownian Motion Combined with Jump Processes and Modulated by Markov Chains," MPRA Paper 90549, University Library of Munich, Germany.
  49. Gaetano Bua & Daniele Marazzina, 2021. "On the application of Wishart process to the pricing of equity derivatives: the multi-asset case," Computational Management Science, Springer, vol. 18(2), pages 149-176, June.
  50. Sha Lin & Xin-Jiang He, 2022. "Analytically Pricing European Options under a New Two-Factor Heston Model with Regime Switching," Computational Economics, Springer;Society for Computational Economics, vol. 59(3), pages 1069-1085, March.
  51. Kai‐Jiun Chang & Mao‐Wei Hung & Yaw‐Huei Wang & Kuang‐Chieh Yen, 2019. "Volatility information implied in the term structure of VIX," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(1), pages 56-71, January.
  52. Yichen Zhu & Marcos Escobar-Anel & Matt Davison, 2023. "A Polynomial-Affine Approximation for Dynamic Portfolio Choice," Computational Economics, Springer;Society for Computational Economics, vol. 62(3), pages 1177-1213, October.
  53. De Col, Alvise & Gnoatto, Alessandro & Grasselli, Martino, 2013. "Smiles all around: FX joint calibration in a multi-Heston model," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3799-3818.
  54. Corte, Pasquale Della & Kozhan, Roman & Neuberger, Anthony, 2021. "The cross-section of currency volatility premia," Journal of Financial Economics, Elsevier, vol. 139(3), pages 950-970.
  55. Robert J. Elliott & Katsumasa Nishide & Carlton‐James U. Osakwe, 2016. "Heston‐Type Stochastic Volatility with a Markov Switching Regime," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(9), pages 902-919, September.
  56. Sebastian A. Gehricke & Jin E. Zhang, 2020. "Modeling VXX under jump diffusion with stochastic long‐term mean," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(10), pages 1508-1534, October.
  57. Aït-Sahalia, Yacine & Li, Chenxu & Li, Chen Xu, 2021. "Closed-form implied volatility surfaces for stochastic volatility models with jumps," Journal of Econometrics, Elsevier, vol. 222(1), pages 364-392.
  58. Bollerslev, Tim & Todorov, Viktor & Xu, Lai, 2015. "Tail risk premia and return predictability," Journal of Financial Economics, Elsevier, vol. 118(1), pages 113-134.
  59. Brignone, Riccardo & Gonzato, Luca & Lütkebohmert, Eva, 2023. "Efficient Quasi-Bayesian Estimation of Affine Option Pricing Models Using Risk-Neutral Cumulants," Journal of Banking & Finance, Elsevier, vol. 148(C).
  60. Christensen, Bent Jesper & Varneskov, Rasmus Tangsgaard, 2017. "Medium band least squares estimation of fractional cointegration in the presence of low-frequency contamination," Journal of Econometrics, Elsevier, vol. 197(2), pages 218-244.
  61. Fabien Le Floc’h & Cornelis W. Oosterlee, 2019. "Model-Free Stochastic Collocation for an Arbitrage-Free Implied Volatility, Part II," Risks, MDPI, vol. 7(1), pages 1-21, March.
  62. Torben G. Andersen & Nicola Fusari & Viktor Todorov, 2015. "Parametric Inference and Dynamic State Recovery From Option Panels," Econometrica, Econometric Society, vol. 83(3), pages 1081-1145, May.
  63. Jaegi Jeon & Geonwoo Kim & Jeonggyu Huh, 2019. "Consistent and Efficient Pricing of SPX and VIX Options under Multiscale Stochastic Volatility," Papers 1909.10187, arXiv.org.
  64. Gaetano La Bua & Daniele Marazzina, 2022. "A new class of multidimensional Wishart-based hybrid models," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(1), pages 209-239, June.
  65. Christoffersen, Peter & Feunou, Bruno & Jacobs, Kris & Meddahi, Nour, 2014. "The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(3), pages 663-697, June.
  66. Bretó, Carles, 2014. "On idiosyncratic stochasticity of financial leverage effects," Statistics & Probability Letters, Elsevier, vol. 91(C), pages 20-26.
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  68. Baldeaux, Jan & Ignatieva, Katja & Platen, Eckhard, 2018. "Detecting money market bubbles," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 369-379.
  69. Gang Li & Chu Zhang, 2010. "On the Number of State Variables in Options Pricing," Management Science, INFORMS, vol. 56(11), pages 2058-2075, November.
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