Can the implied volatility surface move by parallel shifts? (Q2430258)
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English | Can the implied volatility surface move by parallel shifts? |
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Can the implied volatility surface move by parallel shifts? (English)
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6 April 2011
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In this short note, the authors derive some model-independent properties of the implied volatility surface and use these properties to establish the conjecture of Steve Ross. Informally, the conjecture says that the implied volatility surface cannot move by parallel shifts. This result is interesting and important because it shows that blindly imposing dynamics on the implied volatility surface may lead to inconsistencies. This result is obtained under the fairly mild assumption that the price process is a continuous positive martingale.
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implied volatility
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smile asymptotic
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long rate
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Black-Scholes formula
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Mills' ratio
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