Extreme at-the-money skew in a local volatility model
dc.bibliographicCitation.seriesTitle | WIAS Preprints | eng |
dc.bibliographicCitation.volume | 2468 | |
dc.contributor.author | Pigato, Paolo | |
dc.date.accessioned | 2018-03-30T04:31:52Z | |
dc.date.available | 2019-06-28T08:03:29Z | |
dc.date.issued | 2017 | |
dc.description.abstract | We consider a local volatility model, with volatility taking two possible values, depending on the value of the underlying with respect to a fixed threshold. When the threshold is taken at-the-money, we establish exact pricing formulas and compute short-time asymptotics of the implied volatility surface. We derive an exact formula for the at-the-money implied volatility skew, which explodes as T-1/2, reproducing the empirical "steep short end of the smile". This behavior does not depend on the precise choice of the parameters, but simply follows from the "regime-switch" of the local volatility at-the-money. | eng |
dc.description.version | publishedVersion | eng |
dc.format | application/pdf | |
dc.identifier.issn | 2198-5855 | |
dc.identifier.uri | https://doi.org/10.34657/2374 | |
dc.identifier.uri | https://oa.tib.eu/renate/handle/123456789/2045 | |
dc.language.iso | eng | eng |
dc.publisher | Berlin : Weierstraß-Institut für Angewandte Analysis und Stochastik | eng |
dc.relation.doi | https://doi.org/10.20347/WIAS.PREPRINT.2468 | |
dc.relation.issn | 0946-8633 | eng |
dc.rights.license | This document may be downloaded, read, stored and printed for your own use within the limits of § 53 UrhG but it may not be distributed via the internet or passed on to external parties. | eng |
dc.rights.license | Dieses Dokument darf im Rahmen von § 53 UrhG zum eigenen Gebrauch kostenfrei heruntergeladen, gelesen, gespeichert und ausgedruckt, aber nicht im Internet bereitgestellt oder an Außenstehende weitergegeben werden. | ger |
dc.subject.ddc | 510 | eng |
dc.subject.other | Implied volatility | eng |
dc.subject.other | local volatility | eng |
dc.subject.other | skew explosion | eng |
dc.subject.other | small-time asymptotics | eng |
dc.subject.other | European option pricing | eng |
dc.subject.other | discontinuous coefficients | eng |
dc.subject.other | regime-switch | eng |
dc.title | Extreme at-the-money skew in a local volatility model | eng |
dc.type | Report | eng |
dc.type | Text | eng |
tib.accessRights | openAccess | eng |
wgl.contributor | WIAS | eng |
wgl.subject | Mathematik | eng |
wgl.type | Report / Forschungsbericht / Arbeitspapier | eng |
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