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No-Arbitrage Condition of Option Implied Volatility and Bandwidth Selection

The result's identifiers

  • Result code in IS VaVaI

    <a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985556%3A_____%2F14%3A00429805" target="_blank" >RIV/67985556:_____/14:00429805 - isvavai.cz</a>

  • Result on the web

  • DOI - Digital Object Identifier

Alternative languages

  • Result language

    angličtina

  • Original language name

    No-Arbitrage Condition of Option Implied Volatility and Bandwidth Selection

  • Original language description

    A standard approach to option pricing is based on Black-Scholes type (BS hereafter) models utilizing the no-arbitrage argument of complete markets. However, there are several crucial assumptions, such as that the option underlying log-returns follow normal distribution, there is unique and deterministic riskless rate as well as the volatility of underlying log-returns. Since the assumptions are generally not fulfilled, the BS-type models mostly provide false results. A common market practice is therefore to invert option pricing model and using market prices of highly liquid options to get a so called implied volatility (IV). The BS model at one time moment can be related to the whole set of IVs as given by maturity/moneyness relation of tradable options. One can therefore get IV curve or surface (a so called smirk or smile). Since the moneyness and maturity of IV often do not match the data of valuated options, some sort of estimating and local smoothing is necessary.

  • Czech name

  • Czech description

Classification

  • Type

    J<sub>x</sub> - Unclassified - Peer-reviewed scientific article (Jimp, Jsc and Jost)

  • CEP classification

    AH - Economics

  • OECD FORD branch

Result continuities

  • Project

    <a href="/en/project/GA13-25911S" target="_blank" >GA13-25911S: Arbitrage-free modelling of implied volatility.</a><br>

  • Continuities

    I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Others

  • Publication year

    2014

  • Confidentiality

    S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Data specific for result type

  • Name of the periodical

    The Anthropologist: international journal of contemporary and applied studies of man

  • ISSN

    0972-0073

  • e-ISSN

  • Volume of the periodical

    17

  • Issue of the periodical within the volume

    3

  • Country of publishing house

    IN - INDIA

  • Number of pages

    5

  • Pages from-to

    751-755

  • UT code for WoS article

    000340016100007

  • EID of the result in the Scopus database