implied volatility smile and the risk neutral density function is tested on SPX options …

This article postulates a flexible specification for the implied volatility surface, which accounts for the existence … of volatility skew and term structure. I show that it is possible to express the local volatility function in terms of … the implied volatility. I then obtain an analytic formula for the local volatility function. The resulting local …

assets. Each asset volatility smile is modeled according to a density-mixture dynamical model while the same property holds … reconcile single name and index/basket volatility smiles in a consistent framework. Our approach could be dubbed a … multidimensional local volatility approach with vector-state dependent diffusion matrix. The model is quite tractable, leading to a …

volatility level. Single-factor stochastic volatility models are not flexible enough to account for the stochastic behavior of … the skew. On the other hand, multifactor stochastic volatility models are able to account for the existence of stochastic … that the consideration of additional volatility factors in the context of stochastic volatility models allows us to …

volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM), and can be tracked using … density on volatility. Our analysis relies on a specification of the martingale change of measure, which we will refer to as … separability. This specification has a multiplicative component that behaves like a risk premium on volatility-uncertainty in the …

We dissect the impact of information contained for future asset returns in the implied volatility skew. Future returns … volatility skew, calculated as the difference between out-of-the-money and at-the-money puts. We caution against using skew …

at-the-money volatility with the returns of the underlying) and the skew of the option smile. The ratio between these two … the fact that the volatility skew is, in general, different from the skewness of the underlying. We compare our theory …