Can there be an explicit formula for implied volatility?

MaRDI QIDQ5415384zbMATH OpenFDO

Authors Stefan Gerhold

Publication date 12 May 2014

Full work available at URL https://arxiv.org/abs/1211.4978, http://www.emis.de/journals/AMEN/2013/2013.htm

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zbMATH Keywords

implied volatility function

Mathematics Subject Classification ID

Other functions defined by series and integrals (33E20) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: It is "well known" that there is no explicit expression for the Black-Scholes implied volatility. We prove that, as a function of underlying, strike, and call price, implied volatility does not belong to the class of D-finite functions. This does not rule out all explicit expressions, but shows that implied volatility does not belong to a certain large class, which contains many elementary functions and classical special functions.

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(3)

• Small-maturity asymptotics for the at-the-money implied volatility slope in Lévy models
• A PDE method for estimation of implied volatility
• Tighter bounds for implied volatility

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