Implied volatility explosions: European calls and implied volatilities close to expiry in exponential Lévy models

Details Implied volatility explosions: European calls and implied volatilities close to expiry in exponential Lévy models Implied volatility explosions: European calls and implied volatilities close to expiry in exponential Lévy models

2008-09-19

arxiv.org/abs/0809.3305v2

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

We examine the small expiry behaviour of European call options in stock price models of exponential L\'evy type. In most cases of interest, we are able to identify the exact small expiry asymptotics. In "complete generality" we are able to show that the time value of the call option has O(\tau) decay as \tau (time to expiry) goes to zero. Using our results on the behaviour of call options close to expiry we show that implied volatility explodes as $\tau\to0^+$ in "most" exponential L\'evy models. Attention is restricted to calls and implied volatilities that are not at-the-money.

Affiliated with

Also associated with

No associations

Rating

Implied volatility explosions: European calls and implied volatilities close to expiry in exponential Lévy models does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Implied volatility explosions: European calls and implied volatilities close to expiry in exponential Lévy models, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Implied volatility explosions: European calls and implied volatilities close to expiry in exponential Lévy models will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-157351