We discuss the impact of volatility estimates from high frequency data on derivative pricing. The principal purpose is to estimate the diffusion coefficient of an Itô process using a nonparametric Nadaraya–Watson kernel approach based on selective estimators of spot volatility proposed in the...

We consider the option pricing model proposed by Mancino and Ogawa, where the implementation of dynamic hedging strategies has a feedback impact on the price process of the underlying asset. We present numerical results showing that the smile and skewness patterns of implied volatility can...