Corridor implied volatility is obtained from model-free implied volatility by truncating the integration domain between two barriers. Empirical evidence on volatility forecasting, in various markets, points to the utility of trimming the risk-neutral distribution of the underlying stock price,...

Corridor implied volatility introduced in Carr and Madan (1998) and recently implemented in Andersen and Bondarenko (2007) is obtained from model-free implied volatility by truncating the integration domain between two barriers. Corridor implied volatility is implicitly linked with the concept...

The aim of this paper is twofold: to investigate how the information content of implied volatility varies according to moneyness and option type and to compare the latter option based forecasts with historical volatility in order to see if they subsume all the information contained in the...

The aim of this paper is twofold: to investigate how the information content of implied volatility varies according to moneyness and option type, and to compare option-based forecasts with historical volatility in order to see if they subsume all the information contained in historical...

The aim of the present paper is to provide evidence on the internal market efficiency of the Italian index option market. To this end a model-free approach is taken, whereby strategies involving only options are tested by means of a high frequency dataset covering the period 1 September – 31...

The birth and success of index option markets have fostered empirical research on their efficiency. While most of the literature focuses on North American markets, studies on European markets are still limited. The aim of the present paper is to provide further evidence on a European market, the...

A major issue in the construction of implied trees is the no arbitrage property preservation. Within the literature on deterministic smile-consistent trees using forward induction, two major contributions are: Derman and Kani (1994) and Barle and Cakici (1998). The former proposes a methodology...

Standard methodologies for the derivation of implied trees from option prices are based on the validity of the put-call parity. Muzzioli and Torricelli (2002) propose a methodology which accounts for PCP violations. Based on this latter approach the present paper advances in two main directions....