Peng He

(Author)

A Risk Neutral Stochastic Implied Volatility Model and ApplicationsPaperback, 17 July 2009

A Risk Neutral Stochastic Implied Volatility Model and Applications
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Print Length
68 pages
Language
English
Publisher
VDM Verlag
Date Published
17 Jul 2009
ISBN-10
363917626X
ISBN-13
9783639176261

Description

The dynamics of smile surface lead practitioner and researcher to introduce the randomness in the implied volatility, which is are specific in option markets. The monograph develops a risk-neutral stochastic At- the-Money implied volatility model and its applications. Three characteristics of implied volatility are presented. After the proper model setup, the risk-neutral drift term of stochastic implied volatility is derived, which is necessary to be no-arbitrage. We proved that the implied volatility of At-the-Money options mature immediately should converge to underlying volatility at the rate of time to maturity, which specifies the stochastic process of underlying volatility. Monte Carlo simulation is used to simulate the complex whole system. Skew curve and terminal underlying price distribution are studied. The two model parameters are able to explain market skew phenomena quite well. Barrier option is priced and future implied volatility is forecast off the simulation. The monograph should be helpful for option traders, and should be especially useful for graduate students and researcher in financial math field.

Product Details

Author:
Peng He
Book Format:
Paperback
Country of Origin:
US
Date Published:
17 July 2009
Dimensions:
22.86 x 15.24 x 0.41 cm
ISBN-10:
363917626X
ISBN-13:
9783639176261
Language:
English
Location:
Saarbrucken
Pages:
68
Publisher:
Weight:
113.4 gm

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