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Property / instance of: scholarly article / rank | |||||||||||||||
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Property / title: The exact Taylor formula of the implied volatility (English) / rank | |||||||||||||||
Property / zbMATH Open document ID | |||||||||||||||
Property / zbMATH Open document ID: 1414.91385 / rank | |||||||||||||||
Property / DOI | |||||||||||||||
Property / DOI: 10.1007/s00780-017-0330-x / rank | |||||||||||||||
Property / author | |||||||||||||||
Property / author: Stefano Pagliarani / rank | |||||||||||||||
Property / author | |||||||||||||||
Property / author: Andrea Pascucci / rank | |||||||||||||||
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Property / published in: Finance and Stochastics / rank | |||||||||||||||
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Property / publication date: 21 July 2017 / rank | |||||||||||||||
Property / full work available at URL | |||||||||||||||
Property / full work available at URL: https://arxiv.org/abs/1510.06084 / rank | |||||||||||||||
Property / review text | |||||||||||||||
Property / review text: In this work, a model driven by a multidimensional local diffusion (a Feller process which is also an inhomogeneous local diffusion) is studied, and an exact Taylor formula for implied volatility \(\sigma=\sigma(t,x; T,k)\) related to a call option with log-strike \(k\), maturity \(T\) and log-price \(x\) of the underlying asset at time \(t\) is proved. The obtained exact Taylor formula holds in a parabolic region of \((T,k)\) close to expiry and at-the-money, namely \(|x-k|\leq \lambda\sqrt{T-t}\) for an arbitrary \(\lambda>0\). The results are proved under mild conditions and apply to many popular models, including CEV, Heston and SABR, among others. Also, one can use them to study asymptotic behaviour of IV generated by VIX options where vertical limits (with \(T\to t+\) and \(k\) fixed) known in the literature are not sufficient. The main idea is to obtain sharp bounds on the difference between \(\sigma\) (resp. its derivatives \(\partial^q_T\partial^m_k \sigma\)) and a fully explicit approximation \(\bar{\sigma}\) (resp. its derivatives \(\partial^q_T\partial^m_k \bar{\sigma}\)) as \((T,k)\to(t,x)\) within the considered region. Here \(2q+m\leq N\) and \(N\) is the order of approximation. The approximation \(\bar{\sigma}\) was introduced and studied in an earlier paper by \textit{M. Lorig} et al. [Math. Finance 27, No. 3, 926--960 (2017; Zbl 1422.91713)]. / rank | |||||||||||||||
Property / reviewed by | |||||||||||||||
Property / reviewed by: Martynas Manstavičius / rank | |||||||||||||||
Property / Mathematics Subject Classification ID | |||||||||||||||
Property / Mathematics Subject Classification ID: 91G20 / rank | |||||||||||||||
Property / Mathematics Subject Classification ID | |||||||||||||||
Property / Mathematics Subject Classification ID: 60J60 / rank | |||||||||||||||
Property / Mathematics Subject Classification ID | |||||||||||||||
Property / Mathematics Subject Classification ID: 60J70 / rank | |||||||||||||||
Property / zbMATH DE Number | |||||||||||||||
Property / zbMATH DE Number: 6751103 / rank | |||||||||||||||
Property / zbMATH Keywords | |||||||||||||||
Property / zbMATH Keywords: implied volatility / rank | |||||||||||||||
Property / zbMATH Keywords | |||||||||||||||
Property / zbMATH Keywords: local-stochastic volatility / rank | |||||||||||||||
Property / zbMATH Keywords | |||||||||||||||
Property / zbMATH Keywords: local diffusions / rank | |||||||||||||||
Property / zbMATH Keywords | |||||||||||||||
Property / zbMATH Keywords: Feller process / rank | |||||||||||||||
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Property / MaRDI profile type: MaRDI publication profile / rank | |||||||||||||||
Property / OpenAlex ID | |||||||||||||||
Property / OpenAlex ID: W3121364901 / rank | |||||||||||||||
Property / arXiv ID | |||||||||||||||
Property / arXiv ID: 1510.06084 / rank | |||||||||||||||
links / mardi / name | links / mardi / name | ||||||||||||||
Latest revision as of 12:17, 29 April 2024
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