FX Volatility Smile Construction

FX Smile Modelling

Nonlinear Features of Realized Fx Volatility

This paper investigates nonlinear features of FX volatility dynamics using estimates of daily volatility based on the sum of intraday squared returns. Measurement errors associated with using realized volatility to estimate ex post latent volatility imply that standard time series models of the conditional variance become variants of an ARMAXmodel. We explore nonlinear departures from these lin...

Do Swedes Smile? On Implied Volatility Functions

An examination of implied volatilities for Swedish equity options shows a rather U-shaped smile pattern when the volatilities are averaged within groups according to their moneyness. The detected volatility smile makes the use of at-the-money implied volatilities for valuation of inor out-of-the-money options questionable. The at-the-money implied volatilities work well for valuing at-the-money...

Implied Trinomial Trees of the Volatility Smile

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Implied Volatility Surface Construction

Implied volatility surfaces are central tools used for pricing options. This thesis treats the topic of their construction. The main purpose is to uncover the most appropriate methodology for constructing implied volatility surfaces from discrete data and evaluate how well it performs. First some methods and techniques in use for such surface constructing are presented. Then the most attractive...