Implied Volatility at Expiration
The main result of the paper is a formula for zero time-to-maturity limit of implied volatilities of European options under a broad class of stochastic volatility models. Based on this formula, we propose a closed-form approximation of the implied volatility smile. Numerical examples suggest that our approximation is accurate in the absence of mean-reversion in stochastic volatility.
|Date of creation:||Nov 2004|
|Date of revision:||Jan 2008|
|Contact details of provider:|| Web page: http://www.SwissFinanceInstitute.ch|
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