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 language | English (US) |
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Pages (from-to) | 364-392 |
Number of pages | 29 |
Journal | Journal of Econometrics |
Volume | 222 |
Issue number | 1 |
DOIs | |
State | Published - May 2021 |
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
Keywords
- Closed-form expansion
- Implied volatility surface
- Jumps
- Model selection
- Option pricing
- Stochastic volatility