The small-maturity implied volatility of an asset pricing model is fully determined by the asymptotics of traded option prices, and thus model-free expressions are available. We show how by sharpening one such expression it is possible to derive a novel general formula for the leading order of the in-the-money and out-of-the money (ITM/OTM) implied volatility skew. We apply this formula to find expressions of the small maturity limiting skew of the Heston stochastic volatility model, of exponential L & eacute;vy models and their time changes, as well as that of some recently proposed pricing models with independent log returns.

Azzone, M., Torricelli, L. (In stampa/Attività in corso). On the implied volatility skew outside the at-the-money point. QUANTITATIVE FINANCE, online first, 1-11 [10.1080/14697688.2024.2357727].

On the implied volatility skew outside the at-the-money point

Torricelli L.
In corso di stampa

Abstract

The small-maturity implied volatility of an asset pricing model is fully determined by the asymptotics of traded option prices, and thus model-free expressions are available. We show how by sharpening one such expression it is possible to derive a novel general formula for the leading order of the in-the-money and out-of-the money (ITM/OTM) implied volatility skew. We apply this formula to find expressions of the small maturity limiting skew of the Heston stochastic volatility model, of exponential L & eacute;vy models and their time changes, as well as that of some recently proposed pricing models with independent log returns.
In corso di stampa
Azzone, M., Torricelli, L. (In stampa/Attività in corso). On the implied volatility skew outside the at-the-money point. QUANTITATIVE FINANCE, online first, 1-11 [10.1080/14697688.2024.2357727].
Azzone, M.; Torricelli, L.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/982357
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