Closed-form implied volatility surfaces for stochastic volatility models with jumps

Yacine Aït-Sahalia, Chenxu Li, Chen Xu Li

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

We develop a closed-form bivariate expansion of the shape characteristics of the implied volatility surface generated by a stochastic volatility model with jumps in returns. We use the expansion to analyse the impact on the shape of the implied volatility surface of the various features of the stochastic volatility model and to determine which stochastic volatility models are capable of reproducing the observed characteristics of the implied volatility market data.

Original languageEnglish (US)
JournalJournal of Econometrics
DOIs
StateAccepted/In press - 2020

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Closed-form expansion
  • Implied volatility surface
  • Jumps
  • Model selection
  • Option pricing
  • Stochastic volatility

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