Carey, Alexander (2005): Higher-order volatility.
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An important purpose of derivatives modelling is to provide practitioners with actionable measures of risk. The Black and Scholes volatility remains a favourite on trading floors in spite of well-known biases. One popular extension is to make volatility a function of time and the underlying asset price, as in local volatility models. This paper presents an alternative extension, which produces volatility-like quantities to address the skews and smiles found in most derivatives markets.
|Item Type:||MPRA Paper|
|Original Title:||Higher-order volatility|
|Keywords:||higher-order volatility; higher-order moments; volatility smile; S&P 500|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing
|Depositing User:||Alexander Carey|
|Date Deposited:||22. Sep 2007|
|Last Modified:||10. Mar 2015 06:01|
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