Volatility estimation from observed option prices |
| |
Authors: | Phelim P Boyle Draviam Thangaraj |
| |
Institution: | J. Page Wadsworth Chair of Finance, Center for Advanced Studies in Finance, University of Waterloo?e-mail: pboyle@watarts.uwaterloo.ca, CA Center for Advanced Studies in Finance and Department of Statistics & Actuarial Science, University of Waterloo?e-mail: t2draviam@elora.uwaterloo.ca, CA
|
| |
Abstract: | It is well established that the standard Black-Scholes model does a very poor job in matching the prices of vanilla European options. The implied volatility varies by both time to maturity and by the moneyness of the option. One approach to this problem is to use the market option prices to back out a local volatility function that reproduces the market prices. Since option price observations are only available for a limited set of maturities and strike prices, most algorithms require a smoothing technique to implement this approach. In this paper we modify the implementation of Andersen and Brotherton-Ratcliffe to provide another way of dealing with this issue. Numerical examples indicate that our approach is reasonably successful in reproducing the input prices. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |