Implied Stochastic Volatility Models
51 Pages Posted: 1 Jun 2017 Last revised: 21 Feb 2019
Date Written: February 17, 2019
This paper proposes to build "implied stochastic volatility models" designed to fit option-implied volatility data, and implements a method to construct such models. The method is based on explicitly linking shape characteristics of the implied volatility surface to the specification of the stochastic volatility model. We propose and implement parametric and nonparametric versions of implied stochastic volatility models.
Keywords: implied volatility surface, stochastic volatility, option pricing, closed-form expansion
JEL Classification: G12, C51, C52
Suggested Citation: Suggested Citation