Ambiguity aversion in dynamic models is motivated by the presence of unknown time-varying features, which agents do not understand and cannot theorize about. We analyze the consequences of this assumption for economic agents and model builders, who typically need to estimate a model, e.g., to...

We derive a closed-form asymptotic expansion formula for option implied volatility under a two-factor jump-diffusion stochastic volatility model when time-to-maturity is small. Based on numerical experiments we describe the range of time-to-maturity and moneyness for which the approximation is...