Characterizing implied volatility functions from agricultural options markets

Intermediate Volatility Forecasts Using Implied Forward Volatility: The Performance of Selected Agricultural Commodity Options by

From characteristic functions to implied volatility expansions

For any strictly positive martingale S = e for which X has an analytically tractable characteristic function, we provide an expansion for the implied volatility. This expansion is explicit in the sense that it involves no integrals, but only polynomials in log(K/S0). We illustrate the versatility of our expansion by computing the approximate implied volatility smile in three well-known martinga...

Implied volatility functions: empirical tests

Black and Scholes (1973) implied volatilities tend to be systematically related to the option’s exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behavior to the fact that the Black/Scholes constant volatility assumption is violated in practice. These authors hypothesize that the volatility of the underlying asset’s return is a de...

Implied volatility functions: a reprise

Dumas, Fleming, Whaley (DFW, 1998) find that option models based on deterministic volatility functions (DVF) perform poorly because the estimated volatility function is unstable over time. DFW provide evidence that the DVF changes significantly on a weekly basis. This paper proposes a new class of dynamic implied volatility function models (DIVF). This class of models separates a time-invariant...

Implied Volatility of Leveraged ETF Options

This paper studies the problem of understanding implied volatilities from options written on leveraged exchanged-traded funds (LETFs), with an emphasis on the relations between options on LETFs with different leverage ratios. We first examine from empirical data the implied volatility surfaces for LETFs based on the S&P 500 index, and we introduce the concept of moneyness scaling to enhance the...