Semiparametric modeling of implied volatility.
Black-Scholes modelfinancial derivativesimplied volatilitysemi-consisting pricing approachessemiparametric estimation
Introductory exposition (textbooks, tutorial papers, etc.) pertaining to statistics (62-01) Research exposition (monographs, survey articles) pertaining to statistics (62-02) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to actuarial sciences and financial mathematics (62P05)
This book brings together recent advances in the theory of implied volatility and refined semiparametric estimation strategies and dimension reduction methods for functional surfaces. The theory of implied and local volatility is presented. The smile-consistent modeling approaches are discussed in detail. Estimation techniques are also treated. This book is for readers with a preknowledge of stochastic processes and interest in financial derivatives, as for example plain vanilla or exotic options. The book has six chapters. After the introduction, chapter 2 treats the implied volatility surface. Smile consistent volatility models follow in chapter 3, and smoothing techniques in chapter 4. After dimension-reduced modeling (chapter 5) the book ends with a conclusion and outlook in chapter 6. After Chapter 1 (Introduction), Chapter 2 (The Implied Volatility Surface) gives an introduction into the Black-Scholes model. Next, the concepts of implied volatility (IV) and implied volatility surface (IVS) are introduced. Potential directions of relaxing are discussed. The chapter concludes by giving an account of the potential reasons for the existence of non-constant smile functions. Chapter 3 (Smile Consistent Volatility Models) is devoted to local volatility. It discusses several methods to extract local volatility, especially implied tree techniques. Implied trees are parametric approximations to the local volatility functions. It ends by the class of stochastic IV models. Chapter 4 (Smoothing Techniques) treats smoothing techniques of the IVS. After introducing the Nadaraya-Watson estimator as the simplest nonparametric estimator for the IVS, the local polynominal estimation being decisive when it comes to the estimator of IVS is introduced. The least squares kernel estimator smoothes the IVS in the space of option prices. Chapter 5 (Dimension-Reduced Modeling) treats the dimension reduction in IVS modeling. It is divided in two parts. The first part focusses on linear transformations of the IVS. In principal components analysis the high dimensional variables are projected into a lower dimensional space such that as little information as possible is lost. Stability tests across different annual samples are derived and applied. The resulting factors are modeled via standard GARCH time series techniques. The second part treats nonlinear transformations via functional principal components techniques. A semiparametric factor model for the IVS is proposed. It provides a number of advantages compared with other methods, because surface estimation and dimension reduction can be achieved in one step, and the local neighborhood of the design points of the surface is estimated only. So, model biases are avoided. The techniques deliver a small set of functions and factor loadings that span the propagation of the IVS through space and time. Another time series analysis of these factors based on vector autoregressive models is described. Chapter 6 (Conclusion and Outlook) concludes and gives directions of further research.
- Common functional principal components
- The dynamics of implied volatilities: a common principal components approach
- Implied volatility and state price density estimation: arbitrage analysis
- Stochastic implied volatility. A factor-based model.
- The waterline tree for separable local-volatility models
- Local volatility dynamic models
- Parametric modeling of implied smile functions: a generalized SVI model
- Note on multidimensional Breeden-Litzenberger representation for state price densities
- On volatility smile and an investment strategy with out-of-the-money calls
- Implied volatility functions in arbitrage-free term structure models.
- Imposing no-arbitrage conditions in implied volatilities using constrained smoothing splines
- Asymptotic equivalence in Lee's moment formulas for the implied volatility, asset price models without moment explosions, and Piterbarg's conjecture
- Reduced-order models for the implied variance under local volatility
- Dynamics of state price densities
- Parametric estimation of risk neutral density functions
- Least Squares Kernel Smoothing of the Implied Volatility Smile
- Time Dependent Relative Risk Aversion
- scientific article; zbMATH DE number 1538078 (Why is no real title available?)
- Implied volatility surface estimation via quantile regularization
- Generative Bayesian neural network model for risk-neutral pricing of American index options
- Historical backtesting of local volatility model using aud/usd vanilla options
- Variance swap dynamics
- Dynamic semiparametric factor models in risk neutral density estimation
- Investment disputes and their explicit role in option market uncertainty and overall risk instability
- Implied volatility smoothing at COVID-19 times
- Using interpolated implied volatility for analysing exogenous market changes
- A Gaussian semi-parametric implied volatility model
- Methods for modeling and forecasting underlying assets based on market option prices
- A semiparametric stochastic volatility model
- Spectral calibration of exponential Lévy models
- On extracting information implied in options
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