 Calibration of Stock Betas from Skews of Implied VolatilitiesJean-Pierre Fouque and Eli Kollman Applied Mathematical Finance, 2011, vol. 18, issue 2, 119-137 Abstract: We develop call option price approximations for both the market index and an individual asset using a singular perturbation of a continuous-time capital asset pricing model in a stochastic volatility environment. These approximations show the role played by the asset's beta parameter as a component of the parameters of the call option price of the asset. They also show how these parameters, in combination with the parameters of the call option price for the market, can be used to extract the beta parameter. Finally, a calibration technique for the beta parameter is derived using the estimated option price parameters of both the asset and market index. The resulting estimator of the beta parameter is not only simple to implement but has the advantage of being forward looking as it is calibrated from skews of implied volatilities. Keywords: CAPM; stock betas; stochastic volatility; implied volatilities (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:apmtfi:v:18:y:2011:i:2:p:119-137 Ordering information: This journal article can be ordered from DOI: 10.1080/1350486X.2010.481175 Access Statistics for this article Applied Mathematical Finance is currently edited by Professor Ben Hambly and Christoph Reisinger More articles in Applied Mathematical Finance from Taylor & Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.