This paper suggests a method of estimation of the implied volatility smile uncertainty of the observed options prices due to future risk-free rate uncertainty. The purpose is to quantify the range of uncertainty under different scenarios. We consider the setting where both the implied volatility...

Volatility implied from observed option contracts systematically varies with the contracts’ strike price and time to expiration, giving rise to an instantaneously non-flat implied volatility surface (IVS) that exhibits substantial time variation. We identify a number of latent factors that...

Starting from a no-dynamic-arbitrage principle that imposes that trading costs should be non-negative on average and a simple model for the evolution of market prices, we demonstrate a relationship between the shape of the market impact function describing the average response of the market...

In the first quarter of 2006, the Chicago Board Options Exchange introduced, as one of the listed products, options on its implied volatility index (VIX). This created the challenge of developing a pricing framework that can simultaneously handle European options, forward-starts, options on the...

The present paper addresses the problem of computing implied volatilities of options written on a domestic asset based on implied volatilities of options on the same asset expressed in a foreign currency and the exchange rate. It proposes an original method together with explicit formulae to...