December 1, 2005
An important purpose of derivatives modelling is to provide practitioners with actionable measures of risk. The Black and Scholes volatility remains a favourite on trading floors in spite of well-known biases. One popular extension is to make volatility a function of time and the underlying asset price, as in local volatility models. This paper presents an alternative extension, which produces volatility-like quantities to address the skews and smiles found in most derivatives markets.
Number of Pages in PDF File: 14
JEL Classification: G13working papers series
Date posted: December 6, 2005
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.360 seconds