Doran, James; Ronn, Ehud - In: Review of Derivatives Research 8 (2005) 3, pp. 177-198
In this paper we examine the extent of the bias between Black and Scholes (1973)/Black (1976) implied volatility and realized term volatility in the equity and energy markets. Explicitly modeling a market price of volatility risk, we extend previous work by demonstrating that Black-Scholes is an...