Principal Component Analysis (PCA) is a common procedure for the analysis of financial market data, such as implied volatility smiles or interest rate curves. Recently, Pelsser and Lord [11] raised the question whether PCA results may not be 'facts but artefacts'. We extend this line of research...

Prices of foreign exchange options systematically diverge from those consistent with several previous option pricing models. This paper examines whether alternative models better explaining the empirical dynamics of the foreign exchange futures markets can yield implied volatility surfaces...

It is well known that the implied volatilities of options on the same underlying asset differ across strike prices and terms to expiration. However, the reason for this remains unclear. Before the development of theory to explain this phenomenon, it may be helpful to better understand the...