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Article: The implied volatility smirk

TitleThe implied volatility smirk
Authors
KeywordsImplied volatility smirk
Option pricing
Risk-neutral skewness and excess kurtosis
Term structure
Issue Date2008
PublisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/14697688.asp
Citation
Quantitative Finance, 2008, v. 8 n. 3, p. 263-284 How to Cite?
AbstractThis paper provides an industry standard on how to quantify the shape of the implied volatility smirk in the equity index options market. Our local expansion method uses a second-order polynomial to describe the implied volatility-moneyness function and relates the coefficients of the polynomial to the properties of the implied risk-neutral distribution of the equity index return. We present a formal, two-way representation of the link between the level, slope and curvature of the implied volatility smirk and the risk-neutral standard deviation, skewness and excess kurtosis. We then propose a new semi-analytical method to calibrate option-pricing models based on the quantified implied volatility smirk, and investigate the applicability of two option-pricing models.
Persistent Identifierhttp://hdl.handle.net/10722/85541
ISSN
2015 Impact Factor: 0.794
2015 SCImago Journal Rankings: 0.565
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorZhang, JEen_HK
dc.contributor.authorXiang, Yen_HK
dc.date.accessioned2010-09-06T09:06:22Z-
dc.date.available2010-09-06T09:06:22Z-
dc.date.issued2008en_HK
dc.identifier.citationQuantitative Finance, 2008, v. 8 n. 3, p. 263-284en_HK
dc.identifier.issn1469-7688en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85541-
dc.description.abstractThis paper provides an industry standard on how to quantify the shape of the implied volatility smirk in the equity index options market. Our local expansion method uses a second-order polynomial to describe the implied volatility-moneyness function and relates the coefficients of the polynomial to the properties of the implied risk-neutral distribution of the equity index return. We present a formal, two-way representation of the link between the level, slope and curvature of the implied volatility smirk and the risk-neutral standard deviation, skewness and excess kurtosis. We then propose a new semi-analytical method to calibrate option-pricing models based on the quantified implied volatility smirk, and investigate the applicability of two option-pricing models.en_HK
dc.languageengen_HK
dc.publisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/14697688.aspen_HK
dc.relation.ispartofQuantitative Financeen_HK
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectImplied volatility smirken_HK
dc.subjectOption pricingen_HK
dc.subjectRisk-neutral skewness and excess kurtosisen_HK
dc.subjectTerm structureen_HK
dc.titleThe implied volatility smirken_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=1469-7688&volume=8&issue=3&spage=263&epage=284&date=2008&atitle=The+implied+volatility+smirken_HK
dc.identifier.emailZhang, JE: jinzhang@hku.hken_HK
dc.identifier.authorityZhang, JE=rp01125en_HK
dc.description.naturepostprint-
dc.identifier.doi10.1080/14697680601173444en_HK
dc.identifier.scopuseid_2-s2.0-41549150747en_HK
dc.identifier.hkuros141846en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-41549150747&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume8en_HK
dc.identifier.issue3en_HK
dc.identifier.spage263en_HK
dc.identifier.epage284en_HK
dc.identifier.eissn1469-7696-
dc.identifier.isiWOS:000254506800005-
dc.publisher.placeUnited Kingdomen_HK
dc.identifier.scopusauthoridZhang, JE=7601346659en_HK
dc.identifier.scopusauthoridXiang, Y=23478957500en_HK

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