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.File | Dimensione | Formato | |
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QF_SkewOTM.pdf
embargo fino al 09/12/2025
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