A Dynamic Copula Approach to Recovering the Index Implied Volatility Skew

The Dynamic of the Volatility Skew: a Kalman Filter Approach

In the last few years, a lot of attention has been devoted to the issue of understanding and modeling the dynamic of implied volatility curves and surfaces, which is crucial for both trading, pricing and risk management of option positions. We suggest a simple, yet flexible, model, based on a discrete and linear Kalman filter updating of the volatility skew. From a risk management perspective, ...

Analogy Making and the Structure of Implied Volatility Skew

Short-term asymptotics for the implied volatility skew under a stochastic volatility model with Lévy jumps

The implied volatility skew has received relatively little attention in the literature on short-term asymptotics for financial models with jumps, despite its importance in model selection and calibration. We rectify this by providing high-order asymptotic expansions for the at-the-money implied volatility skew, under a rich class of stochastic volatility models with independent stable-like jump...

Short-time asymptotics for the implied volatility skew under a stochastic volatility model with Lévy jumps

The implied volatility slope has received relatively little attention in the literature on short-time asymptotics for financial models with jumps, despite its importance in model selection and calibration. In this paper, we fill this gap by providing high-order asymptotic expansions for the at-the-money implied volatility slope of a rich class of stochastic volatility models with independent st...

From the Implied Volatility Skew to a Robust Correction to Black-Scholes American Option Prices

We describe a robust correction to Black-Scholes American derivatives prices that accounts for uncertain and changing market volatility. It exploits the tendency of volatility to cluster, or fast mean-reversion, and is simply calibrated from the observed implied volatility skew. The two-dimensional free-boundary problem for the derivative pricing function under a stochastic volatility model is ...