Nonparametric estimation for stochastic volatility models
The paper studies the relation between spot and implied volatilities. More specifically, a market where primary securities are traded along with liquid options on them is considered. The price process is assumed to be continuous, but, apart from this, only a few assumptions are made in order to be as general as possible. In particular, there is no Markov assumption. The main result is the derivation of a new equation which gives the dynamics of the spot volatility in terms of the shape and the dynamics of the implied volatility surface. This equation is a consequence of no-arbitrage constraints on the implied volatility surface right before expiry. The derivation of the semimartingale decomposition of the spot volatility is done through an asymptotic analysis of the implied volatility surface for short maturities. Also, the author considers an application of the main result to a converse problem: he gets an approximation of the implied volatility smile starting from the spot volatility semimartingale decomposition.
- Nonparametric estimation for stochastic volatility models
- Nonparametric estimation of stochastic volatility models
- Nonparametric modelling and estimation of stochastic volatility
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- On the estimation of non linear functions in stochastic volatility models
- A general version of the fundamental theorem of asset pricing
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- Convergence of At-The-Money Implied Volatilities to the Spot Volatility
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- On the curvature of the smile in stochastic volatility models
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- Option price asymptotics under a stochastic volatility Lévy model with infinite activity jumps
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