IDEAS home Printed from
   My bibliography  Save this article

Of Smiles and Smirks: A Term Structure Perspective


  • Das, Sanjiv Ranjan
  • Sundaram, Rangarajan K.


An extensive empirical literature in finance has documented not only the presence of anomalies in the Black-Scholes model, but also the term structures of these anomalies (for instance, the behavior of the volatility smile or of unconditional returns at different maturities). Theoretical efforts in the literature at addressing these anomalies have largely focused on two extensions of the Black-Scholes model: introducing jumps into the return process, and allowing volatility to be stochastic. We employ commonly used versions of these two classes of models to examine the extent to which the models are theoretically capable of resolving the observed anomalies. We find that each model exhibits some term structure patterns that are fundamentally inconsistent with those observed in the data. As a consequence, neither class of models constitutes an adequate explanation of the empirical evidence, although stochastic volatility models fare somewhat better than jumps.

Suggested Citation

  • Das, Sanjiv Ranjan & Sundaram, Rangarajan K., 1999. "Of Smiles and Smirks: A Term Structure Perspective," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(2), pages 211-239, June.
  • Handle: RePEc:cup:jfinqa:v:34:y:1999:i:02:p:211-239_00

    Download full text from publisher

    File URL:
    File Function: link to article abstract page
    Download Restriction: no

    Other versions of this item:

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:34:y:1999:i:02:p:211-239_00. 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: (Keith Waters). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.