Quadratic Volatility Smiles

Name: Quadratic Volatility Smiles
Creator: Haim Reisman
Keywords: 8. Economic growth

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type 01 Jan 2001 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

Authors: Haim Reisman;

doi: 10.2139/ssrn.275135

Quadratic Volatility Smiles

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Abstract

The paper assumes that the implied volatility of options with some given expiration is a quadratic function of the moneyness. The coefficients of this quadratic function (the smile) are time dependent and stochastic. The paper derives exposure parameters of the price of the option to the local change in each of the smile coefficients, and an approximate formula for their risk adjusted expected value. These are important in managing the exposure of the price of an option portfolio to changes in the smile coefficients.

Related Organizations

Technion – Israel Institute of Technology
Israel

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