Implied Stochastic Volatility Models

51 Pages Posted: 1 Jun 2017 Last revised: 21 Feb 2019

See all articles by Yacine Ait-Sahalia

Yacine Ait-Sahalia

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Chenxu Li

Peking University - Guanghua School of Management

Chen Xu Li

Princeton University - Bendheim Center for Finance

Date Written: February 17, 2019

Abstract

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

Ait-Sahalia, Yacine and Li, Chenxu and Li, Chenxu, Implied Stochastic Volatility Models (February 17, 2019). Available at SSRN: https://ssrn.com/abstract=2977828 or http://dx.doi.org/10.2139/ssrn.2977828

Yacine Ait-Sahalia (Contact Author)

Princeton University - Department of Economics ( email )

Fisher Hall
Princeton, NJ 08544
United States
609-258-4015 (Phone)
609-258-5398 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chenxu Li

Peking University - Guanghua School of Management ( email )

Guanghua School of Management
Beijing, 100871
China

Chenxu Li

Princeton University - Bendheim Center for Finance ( email )

Princeton, NJ 08544
United States

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