Implied Volatility at Expiration

Alexey Medvedev
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Alexey Medvedev: PhD student, Swiss Finance Institute and University of Geneva

No 08-04, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The main result of the paper is a formula for zero time-to-maturity limit of implied volatilities of European options under a broad class of stochastic volatility models. Based on this formula, we propose a closed-form approximation of the implied volatility smile. Numerical examples suggest that our approximation is accurate in the absence of mean-reversion in stochastic volatility.

Keywords: Option pricing; stochastic volatility; implied volatility; short-maturity asymptotics. (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-01
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0804

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