Download This PaperA New Factor to Explain Implied Volatility Smirk
23 Pages Posted: 1 Jun 2016
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A New Factor to Explain Implied Volatility Smirk
Number of pages: 20
Posted: 31 Jan 2015
Last Revised: 28 Aug 2015
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Date Written: May 31, 2016
Abstract
In this paper we find empirical evidence of a new smirk factor, obtained from the jump structure of the risk neutral distribution of the underlying Lévy process. As an application we show how to price a barrier style contract.
Keywords: Skewness, Lévy processes, Implied volatility smirk
JEL Classification: C52; G10
Suggested Citation: Suggested Citation
Fajardo, José, A New Factor to Explain Implied Volatility Smirk (May 31, 2016). Available at SSRN: https://ssrn.com/abstract=2787342 or http://dx.doi.org/10.2139/ssrn.2787342
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