Siddiqi, Hammad (2014): Analogy Making and the Structure of Implied Volatility Skew.
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Abstract
An analogy based call option pricing model is put forward. The model provides a new explanation for the implied volatility skew puzzle. The analogy model is consistent with empirical findings about returns from well studied option strategies such as covered call writing and zero-beta straddles. The analogy based stochastic volatility and the analogy based jump diffusion models are also put forward. The analogy based stochastic volatility model generates the skew even when there is no correlation between the stock price and volatility processes, whereas, the analogy based jump diffusion model does not require asymmetric jumps for generating the skew.
Item Type: | MPRA Paper |
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Original Title: | Analogy Making and the Structure of Implied Volatility Skew |
Language: | English |
Keywords: | Implied Volatility Skew, Implied Volatility Smile, Analogy Making, Stochastic Volatility, Jump Diffusion, Covered Call Writing, Zero-Beta Straddle |
Subjects: | G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing |
Item ID: | 60921 |
Depositing User: | Dr. Hammad Siddiqi |
Date Deposited: | 26 Dec 2014 16:24 |
Last Modified: | 03 Oct 2019 12:25 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/60921 |
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