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 and is consistent with empirical findings regarding leverage adjusted option returns. It also explains puzzling superior performance of covered call writing and worsethanexpected performance of zerobeta straddles. The analogy based stochastic volatility and the analogy jump diffusion models are also developed. The analogy based stochastic volatility model generates the skew even without any correlation between the stock price and volatility processes, whereas, the analogy jump diffusion does not require asymmetric jumps to generate the skew.
Item Type:  MPRA Paper 

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, ZeroBeta Straddle, Leverage Adjusted Option Returns 
Subjects:  G  Financial Economics > G1  General Financial Markets > G13  Contingent Pricing ; Futures Pricing 
Item ID:  60968 
Depositing User:  Dr. Hammad Siddiqi 
Date Deposited:  28 Dec 2014 11:54 
Last Modified:  10 Oct 2019 13:48 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/60968 
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