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The Pricing of Derivatives on Assets with Quadratic Volatility

Zühlsdorff, Christian - 2002

Black-Scholes formula for pricing the call option. The asset's volatility is a linear function of the asset value and the … model garantees positive asset prices. In this paper it is shown that the pricing partial differential equation can be …

Persistent link: https://www.econbiz.de/10010317656

Is the corporate bond market forward looking?

Hilscher, Jens - 2007

This paper presents empirical evidence that the corporate bond market is forward looking with respect to volatility. I use the Merton (1974) model to calculate a measure of implied volatility from corporate bond yield spreads. I find that corporate bond transaction prices contain substantial...

Persistent link: https://www.econbiz.de/10011604846

On Smile and Skewness

Platen, Eckhard; Schweizer, Martin - University of Bonn, Germany - 1994

This paper proposes a new explanation for the smile and skewness effects in implied volatilities. Starting from a microeconomic equilibrium approach, we develop a diffusion model for stock prices explicitly incorporating the technical demand induced by hedging strategies. This leads to a...

Persistent link: https://www.econbiz.de/10004968203

A Market Model for Stochastic Implied Volatility

Schönbucher, Philpp J. - University of Bonn, Germany

In this paper a stochastic volatility model is presented that directly prescribes the stochastic development of the implied Black-Scholes volatilities of a set of given standard options. Thus the model is able to capture the stochastic movements of a full term structure of implied volatilities....

Persistent link: https://www.econbiz.de/10004968281

The Pricing of Derivatives on Assets with Quadratic Volatility

Zühlsdorff, Christian - University of Bonn, Germany - 2002

Persistent link: https://www.econbiz.de/10004968438

IMPLIED INDEX AND OPTION PRICING ERRORS: EVIDENCE FROM THE TAIWAN OPTION MARKET

Wang, Ching-Ping; Huang, Hung-Hsi; Hung, Chien-Chia - In: The International Journal of Business and Finance Research 5 (2011) 2, pp. 115-125

compares the pricing performance of restricted and unrestricted Black-Scholes models. The empirical results show he implied … index value is almost higher than the actual index value. Moneyness has a significant negative impact on the index pricing … error for calls but negative impact for puts. Open interest has a significantly negative impact on the index pricing error …

Persistent link: https://www.econbiz.de/10011206165

An Improved Estimator For Black-Scholes-Merton Implied Volatility

Hallerbach, Winfried - Erasmus Research Institute of Management (ERIM), … - 2004

We derive an estimator for Black-Scholes-Merton implied volatility that, when compared to the familiar Corrado & Miller [JBaF, 1996] estimator, has substantially higher approximation accuracy and extends over a wider region of moneyness.

Persistent link: https://www.econbiz.de/10010730867

From Skews to a Skewed-t

de Jong, de Jong, C.M.; Huisman, Huisman, R. - Erasmus Research Institute of Management (ERIM), … - 2000

In this paper we present a new methodology to infer the implied risk-neutral distribution function from European-style options. We introduce a skewed version of the Student-t distribution, whose main advantage is that its shape depends on only four parameters, of which two directly control for...

Persistent link: https://www.econbiz.de/10010731324

Implied Volatility and the Risk-Free Rate of Return in Options Markets

Bianconi, Marcelo; MacLachlan, Scott; Sammon, Marco - Department of Economics, Tufts University - 2014

-Scholes formula. Given this re-pricing, we find that the difference between the market and model price is increasing in moneyness, and … simultaneous solution is useful. We find that after using the SUR model, and re-pricing the options, the varying risk-free rate …

Persistent link: https://www.econbiz.de/10010737659

The Factor Structure in Equity Options

Christoffersen, Peter; Fournier, Mathieu; Jacobs, Kris - School of Economics and Management, University of Aarhus - 2013

Principal component analysis of equity options on Dow-Jones firms reveals a strong factor structure. The first principal component explains 77% of the variation in the equity volatility level, 77% of the variation in the equity option skew, and 60% of the implied volatility term structure across...

Persistent link: https://www.econbiz.de/10010851218