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Smile Dynamics I

Lorenzo Bergomi

Societe Generale

April 1, 2004

Traditionally smile models have been assessed according to how well they fit market option prices across strikes and maturities. However, the pricing of most of the recent exotic structures, such as reverse cliquets or Napoleons, is more dependent on the assumptions made for the future dynamics of implied vols than on today’s vanilla option prices. In this article we study examples of some popular classes of models, such as stochastic volatility and Jump/Lévy models, to highlight structural features of their dynamic properties.

Number of Pages in PDF File: 14

JEL Classification: G13

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Date posted: October 24, 2009  

Suggested Citation

Bergomi, Lorenzo, Smile Dynamics I (April 1, 2004). Available at SSRN: http://ssrn.com/abstract=1493294 or http://dx.doi.org/10.2139/ssrn.1493294

Contact Information

Lorenzo Bergomi (Contact Author)
Societe Generale ( email )
Paris-La Défense, Paris 92987
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