Strike asymptotics for Laplace implied volatilities

Dilip B. Madan and King Wang

Finance Research Letters, 2018, vol. 25, issue C, 183-189

Abstract: Laplace implied volatilities unlike their Black Merton Scholes counterparts are bounded above by the square root of 2. In the extremes they are proportional to the square root of one minus the negative exponential of absolute log moneyness. Extreme strike estimates of proportionality for the S&P 500 index indicate an increase in the number of finite positive moments with the set of finite negative moments remaining unchanged. More moments are finite on both sides at the longer maturities.

Keywords: Laplacian densities; Bounded implied volatilities; Power tails (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:25:y:2018:i:c:p:183-189

DOI: 10.1016/j.frl.2017.10.015

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