A New Factor to Explain Implied Volatility Smirk

fajardo, José (2016): A New Factor to Explain Implied Volatility Smirk.

Abstract

In this paper we find empirical evidence of a new smirk factor, obtained from the jump structure of the risk neutral distribution of the underlying Lévy process. As an application we show how to price a barrier style contract.

• Item Type: MPRA Paper
• Language: English
• Keywords: Skewness, Lévy processes, Implied volatility smirk
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing

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