Smile in the low moments

Skew and curvature of volatility smiles are not only difficult to estimate, but also poorly reproduced by most smile expansions. Jean-Philippe Bouchaud, Lorenzo De Leo, Vincent Vargas and Stefano Ciliberti propose an expansion that effectively captures these dynamics by interpreting its parameters as payouts of exotic options for which efficient pricing methods are readily available

Concept image of yellow smiley face balls

Understanding the shape of volatility smiles in option markets is one of the most active fields of research in quantitative finance (Gatheral, 2006, and Fouque, Papanicolaou & Sircar, 2000). The existence of an option smile is the sign that the standard Black-Scholes model is not an adequate representation of the stochastic dynamics of financial assets. A huge variety of models have been proposed over the years to account for the non-Gaussian nature of price changes and the corresponding option

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

What gold's rise means for rates, equities

It has been several years since we have seen volatility in gold. An increase in gold volatility can typically be associated with a change in sentiment and investor behavior. The precious metal has surged this year on increased demand for safe haven…

Most read articles loading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here