Option Data and Modeling BSM Implied Volatility
HANDBOOK OF COMPUTATIONAL FINANCE, Springer-Verlag, Chapter 6, pp.117-142, edited by Jin-Chuan Duan, Wolfgang Karl Härdle, James E. Gentle, 2012
26 Pages Posted: 5 Sep 2011 Last revised: 1 Nov 2013
Date Written: December 12, 2010
This contribution to the Handbook of Computational Finance, Springer-Verlag, gives an overview on modeling implied volatility data. After introducing the concept of Black-Scholes-Merton implied volatility (IV), the empirical stylized facts of IV data are reviewed. We then discuss recent results on IV surface dynamics and the computational aspects of IV. The main focus is on various parametric, semi- and nonparametric modeling strategies for IV data, including ones which respect no-arbitrage bounds.
Keywords: implied volatility
JEL Classification: G13
Suggested Citation: Suggested Citation