Showing 1 - 10 of 47
of the volatility skew. We get severe mispricing for deep out- of-the-money and short term call options, which tend to … regime in the implied volatility surface judging from the transformation observed from smiles to skews. …
Persistent link: https://www.econbiz.de/10005561655
implied market factor and its instantaneous return’s volatility are leptokurtic distributed. Having a proxy for the systematic … the prevailing relationship between the weekly rolling volatility of the return of the implied market factor and weekly …
Persistent link: https://www.econbiz.de/10005561708
vary by strike price (volatility smiles) and maturity (implied volatility of at­the­money options increases, on average … logarithm of the price of the underlying security. In this setting, volatility is approximately a quadratic function of … moneyness, a result we use to infer skewness and kurtosis from volatility smiles. Evidence suggests that both kurtosis in …
Persistent link: https://www.econbiz.de/10005134642
on the specification of the volatility structure of forward rates. Thus, if any errors exist on the observed yield curve … the cap implied volatility. Incorporating the three residual factors improves the explained variance in cap implied … volatility to over 95 percent. We investigate the reasons behind the ``amplification'' of yield curve residuals in pricing …
Persistent link: https://www.econbiz.de/10005134665
A market is considered whose index has strongly price-dependent local volatility. A tractable parametrization of the … volatility is formulated, and option valuation of a stock with two-factor dynamics is investigated. One factor is the market … a set of calls were fitted with a one-factor implied volatility, the calls could not be hedged solely with an offsetting …
Persistent link: https://www.econbiz.de/10005134815
We examine a recent model, proposed by Hobson and Rogers, which generalizes the classical one by Black and Scholes for pricing derivative securities such as options and futures. We treat the numerical solution of some degenerate partial differential equations governing this financial problem and...
Persistent link: https://www.econbiz.de/10005561720
This paper presents an analytical model of underwriting capacity and insurance market equilibrium under an asymmetric corporate tax schedule. It is shown that reinsurance markets enable risk-neutral insurers to allocate tax shields to those firms that have the greatest capacity for utilizing...
Persistent link: https://www.econbiz.de/10005413066
Merton�s Intertemporal CAPM to test whether these four sources of risk command different risk prices. The model performs well …
Persistent link: https://www.econbiz.de/10005076992
. Such prices determine intrinsic returns that satisfy the CAPM equation. This paper shows that assets that pay a constant … predicts slightly higher discount rates than the CAPM. Empirical evidence supporting the CAPM cannot reject the RVT at a …
Persistent link: https://www.econbiz.de/10005076993
conditional on time-varying volatility. …
Persistent link: https://www.econbiz.de/10005561561