Normalization for Implied Volatility

Masaaki Fukasawa

Papers from arXiv.org

Abstract: We study specific nonlinear transformations of the Black-Scholes implied volatility to show remarkable properties of the volatility surface. Model-free bounds on the implied volatility skew are given. Pricing formulas for the European options which are written in terms of the implied volatility are given. In particular, we prove elegant formulas for the fair strikes of the variance swap and the gamma swap.

Date: 2010-08, Revised 2010-09
New Economics Papers: this item is included in nep-rmg
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