Smiling under stochastic volatility

  1. Rubio Irigoyen, Gonzalo
  2. León Valle, Angel
Aldizkaria:
Spanish economic review

ISSN: 1435-5469

Argitalpen urtea: 2004

Alea: 6

Zenbakia: 1

Orrialdeak: 53-76

Mota: Artikulua

DOI: 10.1007/S10108-003-0077-8 DIALNET GOOGLE SCHOLAR

Beste argitalpen batzuk: Spanish economic review

Laburpena

This paper studies the behavior of the implied volatility function (smile) when the true distribution of the underlying asset is consistent with the stochastic volatility model proposed by Heston (1993). The main result of the paper is to extend previous results applicable to the smile as a whole to alternative degrees of moneyness. The conditions under which the implied volatility function changes whenever there is a change in the parameters associated with Hestons stochastic volatility model for a given degree of moneyness are given.

Erreferentzia bibliografikoak

  • Andersen, T., Benzoni, L., Lund, J. (2002) An Empirical Investigation of Continuous-Time Equity Return Model. Journal of Finance 57: 1239-1284
  • Backus, D., Foresi, S., Li, K., Wu, L. (1997) Accounting for Biases in Black-Scholes. Working Paper, Stern School of Business
  • Bakshi, G., Cao, C., Chen, Z. (1997) Empirical Performance of Alternative Option Pricing Models. Journal of Finance 52: 2003-2049
  • Bates, D. (1996) Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options. Review of Financial Studies 9: 69-107
  • Black, F., Scholes, M. (1973) The Pricing of Options and Corporate Liabilities. Journal of Political Economy 81: 637-659
  • Chernov, M., Ghysels, E. (2000) A Study Towards a Unified Approach to the Joint Estimation of Objective and Risk-Neutral Measure for the Purpose of Option Valuation. Journal of Financial Economics 56: 407-458
  • Corrado, C., Su, T. (1996) Skewness and Kurtosis in S&P 500 Index Returns Implied by Option Prices. Journal of Financial Research 19: 175-192
  • Das, S., Sundaram, R. (1999) Of Smiles and Smirks: A Term-Structure Perspective. Journal of Financial and Quantitative Analysis 34: 211-239
  • Eraker, B., Johannes, M., Polson, N. (2003) The Impact of Jumps in Volatility and Returns. Journal of Finance 58: 1269-1300
  • Fiorentini, G., Leon, A., Rubio, G. (2002) Estimation and Empirical Performance of Heston's Stochastic Volatility Model: The Case of a Thinly Traded Market. Journal of Empirical Finance 9: 225-255
  • Heston, S. (1993) A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options. Review of Financial Studies 6: 327-344
  • Jarrow, R., Rudd, A. (1982) Approximate Option Valuation for Arbitrary Stochastic Processes. Journal of Financial Economics 10: 347-369
  • Pan, J. (2002) The Jump-Risk Premia Implicit in Option Prices: Evidence from an Integrated Time-Series Study. Journal of Financial Economics 63: 3-50
  • Rubinstein, M. (1994) Implied Binomial Trees. Journal of Finance 49: 771-818
Datuen iturria: Dialnet