Fine-tune your smile: Correction to Hagan et al

Jan Obloj

Papers from arXiv.org

Abstract: In this small note we use results derived in Berestycki et al. to correct the celebrated formulae of Hagan et al. We derive explicitly the correct zero order term in the expansion of the implied volatility in time to maturity. The new term is consistent as $\beta\to 1$. Furthermore, numerical simulations show that it reduces or eliminates known pathologies of the earlier formula.

Date: 2007-08, Revised 2008-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://arxiv.org/pdf/0708.0998 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0708.0998

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators (help@arxiv.org).