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Implied volatility smoothing at COVID-19 times

Author

Listed:
  • Sebastiano Vitali

    (University of Bergamo)

  • Miloš Kopa

    (Charles University)

  • Gabriele Giana

    (University of Bergamo)

Abstract

This work aims at studying the impact of the SARS-CoV-2 pandemic on the global financial markets. In particular, such impact is analysed through the changes of the shape of the implied volatility smile of the options written on several equity indexes and on several stocks. The implied volatility function is estimated using the market-based information of liquid options and applying a semi-parametric smoothing technique that exploits a kernel function and no-arbitrage conditions. Such approach is applied to an extensive set of data to study the evolution of the implied volatility functions through the months of the pandemic. We show, in several cases, a sudden and massive change in the shape of the implied volatility functions.

Suggested Citation

  • Sebastiano Vitali & Miloš Kopa & Gabriele Giana, 2023. "Implied volatility smoothing at COVID-19 times," Computational Management Science, Springer, vol. 20(1), pages 1-42, December.
    • Handle: RePEc:spr:comgts:v:20:y:2023:i:1:d:10.1007_s10287-023-00465-z
    DOI: 10.1007/s10287-023-00465-z
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    References listed on IDEAS

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