Realizing smiles: Options pricing with realized volatility
نویسندگان
چکیده
منابع مشابه
Realizing Smiles: Pricing Options with Realized Volatility
We develop a stochastic volatility option pricing model that exploits the informative content of historical high frequency data. Using the Two Scales Realized Volatility as a proxy for the unobservable returns volatility, we propose a simple (affine) but effective long-memory process: the Heterogeneous Auto-Regressive Gamma (HARG) model. This discrete–time process, combined with an exponential ...
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We will in some places restrict attention to puts, by put-call parity: for realized variance options, a long-call short-put combination pays [X]T −Q, equal to a Q-strike variance swap; and for realized volatility options, a long-call short-put combination pays [X] T − Q1/2, equal to a Q1/2-strike volatility swap. Unlike variance swaps [EQF07/024, EQF07/045], which admit exact model-free (assumi...
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Models which hypothesize that returns are pure jump processes with independent increments have been shown to be capable of capturing the observed variation of market prices of vanilla stock options across strike and maturity. In this paper, these models are employed to derive in closed form the prices of derivatives written on future realized quadratic variation. Alternative work on pricing der...
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We find that leverage in exchange traded funds (ETFs) can affect the “crookedness” of volatility smiles. This observation is consistent with the intuition that return shocks are inversely correlated with volatility shocks – resulting in more expensive out-of-the-money put options and less expensive out-of-the-money call options. We show that the prices of options on leveraged and inverse ETFs c...
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We investigate the relative importance of various factors in explaining the volatility smile observed in the prices of options on individual stocks traded on the Chicago Board Options Exchange. First, we verify that, on average, the slope of the volatility smile on stock options is slightly negative, but not as steep as the smile for S&P 500 index options. Second, we find that stocks that have ...
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ژورنال
عنوان ژورنال: Journal of Financial Economics
سال: 2013
ISSN: 0304-405X
DOI: 10.1016/j.jfineco.2012.08.015