Fine-tune your smile: Correction to Hagan et al

arXiv0708.0998MaRDI QIDQ6206434FDOQ6206434

Authors: Jan Obłój 

Publication date: 7 August 2007

Abstract: In this small note we use results derived in Berestycki et al. to correct the celebrated formulae of Hagan et al. We derive explicitly the correct zero order term in the expansion of the implied volatility in time to maturity. The new term is consistent as $$. Furthermore, numerical simulations show that it reduces or eliminates known pathologies of the earlier formula.

This page was built for publication: Fine-tune your smile: Correction to Hagan et al

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6206434)