Implied Volatility Smirk
This paper studies implied volatility smirk quantitatively. We first propose a new concept of smirkness, which is defined as a triplet of at-the-money implied volatility, skewness (slope at the money) and smileness (curvature at the money) of implied volatility-money-ness curve. Empirical evidence from S&P 500 (SPX) index options shows that a quadratic function with both skewness and smileness fits the market implied volatility smirk very well. The risk-neutral probability density function can be recovered analytically from a smirked implied volatility. A new maturity- and liquidity-based procedure is proposed to calibrate option pricing models.
Option pricing Implied volatility smirk Smirkness Term structure
Jin E. Zhang Yi Xiang
School of Business and School of Economics and Finance The University of Hong Kong Pokfulam Road, Ho Department of Finance Hong Kong University of Science and Technology Clear Water Bay, Kowloon, Hong
国际会议
西安
英文
1-46
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）