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Summary: Finance Concepts January 08 2004
1
Reconstructing Volatility
New techniques for understanding the implied
volatility of multi-asset options
Speaker: Marco Avellaneda
Avellaneda, Boyer-Olson, Busca and Friz:
`Reconstructing Volatility', RISK Oct 2002; `Large Deviations Methods and the
Pricing of Index Options in Finance', CRAS Paris 2003
Outline
· Major US indices and ETFs
· Implied volatility surfaces of single stocks and indices
· Marginalization
· `Reconstructing' the implied volatility of index options
· Steepest-descent Approximation
· The most likely market configurations
· Multivariate stochastic volatility models
· Moment-matching technique: Lee, Wang and Karim
· Cross-currency options
Finance Concepts January 08 2004
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