A Survey on Implied Theories : The Volatility Models

36 Pages Posted: 15 Jul 2004 Last revised: 21 Jun 2015

See all articles by Sofiane Aboura

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Date Written: August 1, 2002

Abstract

This paper is the first illustrated review of literature on local and implied volatility. It presents and discusses both concepts that are central in risk management. If local volatility is a relatively recent concept, implied volatility has emerged in the 70's as a global measure of uncertainty in the economy, typically used to calibrate option theoretical prices to market prices. Local volatilities has appeared in the mid 90's as a forward or instantaneous measure of volatility. This work displays the feature of each volatility model and highlights the role of all the structural parameters that drive the volatility process.

Keywords: Implied Volatility, Local Volatility, Stochastic Volatility, GARCH Volatility, Smile, Skew

JEL Classification: C13, G13

Suggested Citation

Aboura, Sofiane, A Survey on Implied Theories : The Volatility Models (August 1, 2002). Available at SSRN: https://ssrn.com/abstract=563541 or http://dx.doi.org/10.2139/ssrn.563541

Sofiane Aboura (Contact Author)

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

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