No-Arbitrage Condition of Option Implied Volatility and Bandwidth Selection

Kód výsledku v 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>

Výsledek na webu

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DOI - Digital Object Identifier

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Jazyk výsledku

angličtina

Název v původním jazyce

No-Arbitrage Condition of Option Implied Volatility and Bandwidth Selection

Popis výsledku v původním jazyce

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.

Název v anglickém jazyce

No-Arbitrage Condition of Option Implied Volatility and Bandwidth Selection

Popis výsledku anglicky

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.

Druh

J_x - Nezařazeno - Článek v odborném periodiku (Jimp, Jsc a Jost)

CEP obor

AH - Ekonomie

OECD FORD obor

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Projekt

<a href="/cs/project/GA13-25911S" target="_blank" >GA13-25911S: Bezarbitrážní modelování implikované volatility.</a><br>

Návaznosti

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Rok uplatnění

2014

Kód důvěrnosti údajů

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

Název periodika

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

ISSN

0972-0073

e-ISSN

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Svazek periodika

17

Číslo periodika v rámci svazku

3

Stát vydavatele periodika

IN - Indická republika

Počet stran výsledku

5

Strana od-do

751-755

Kód UT WoS článku

000340016100007

EID výsledku v databázi Scopus

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