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A closedform solution for options with stochastic volatility with applications to bond and currency options
 Review of Financial Studies
, 1993
"... I use a new technique to derive a closedform solution for the price of a European call option on an asset with stochastic volatility. The model allows arbitrary correlation between volatility and spotasset returns. I introduce stochastic interest rates and show how to apply the model to bond option ..."
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Cited by 1512 (6 self)
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I use a new technique to derive a closedform solution for the price of a European call option on an asset with stochastic volatility. The model allows arbitrary correlation between volatility and spotasset returns. I introduce stochastic interest rates and show how to apply the model to bond
Investor psychology and security market under and overreactions
 Journal of Finance
, 1998
"... We propose a theory of securities market under and overreactions based on two wellknown psychological biases: investor overconfidence about the precision of private information; and biased selfattribution, which causes asymmetric shifts in investors ’ confidence as a function of their investment ..."
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Cited by 698 (43 self)
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outcomes. We show that overconfidence implies negative longlag autocorrelations, excess volatility, and, when managerial actions are correlated with stock mispricing, publiceventbased return predictability. Biased selfattribution adds positive shortlag autocorrelations ~“momentum”!, short
Implied Volatility Functions: Empirical Tests
, 1995
"... Black and Scholes (1973) implied volatilities tend to be systematically related to the option's exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behavior to the fact that the Black/Scholes constant volatility assumption is violat ..."
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Cited by 303 (4 self)
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Black and Scholes (1973) implied volatilities tend to be systematically related to the option's exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behavior to the fact that the Black/Scholes constant volatility assumption
Pricing with a Smile
 Risk Magazine
, 1994
"... prices as a function of volatility. If an option price is given by the market we can invert this relationship to get the implied volatility. If the model were perfect, this implied value would be the same for all option market prices, but reality shows this is not the case. Implied Black–Scholes vol ..."
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Cited by 445 (1 self)
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prices as a function of volatility. If an option price is given by the market we can invert this relationship to get the implied volatility. If the model were perfect, this implied value would be the same for all option market prices, but reality shows this is not the case. Implied Black
The JumpRisk Premia Implicit in Options: Evidence from an Integrated TimeSeries Study
 Journal of Financial Economics
"... Abstract: This paper examines the joint time series of the S&P 500 index and nearthemoney shortdated option prices with an arbitragefree model, capturing both stochastic volatility and jumps. Jumprisk premia uncovered from the joint data respond quickly to market volatility, becoming more p ..."
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Cited by 419 (3 self)
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prominent during volatile markets. This form of jumprisk premia is important not only in reconciling the dynamics implied by the joint data, but also in explaining the volatility “smirks” of crosssectional options data.
The moment formula for implied volatility at extreme strikes
 Mathematical Finance
, 2004
"... Consider options on a nonnegative underlying random variable with arbitrary distribution. In the absence of arbitrage, we show that at any maturity T, the largestrike tail of the BlackScholes implied volatility skew is bounded by the square root of 2x/T, where x is logmoneyness. The smallest co ..."
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Cited by 84 (5 self)
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Consider options on a nonnegative underlying random variable with arbitrary distribution. In the absence of arbitrage, we show that at any maturity T, the largestrike tail of the BlackScholes implied volatility skew is bounded by the square root of 2x/T, where x is logmoneyness. The smallest
The Determinants of Credit Spread Changes.
 Journal of Finance
, 2001
"... ABSTRACT Using dealer's quotes and transactions prices on straight industrial bonds, we investigate the determinants of credit spread changes. Variables that should in theory determine credit spread changes have rather limited explanatory power. Further, the residuals from this regression are ..."
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Cited by 422 (2 self)
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The contingentclaims approach implies that the debt claim has features similar to a short position in a put option. Since option values increase with volatility, it follows that this model predicts credit spreads should increase with volatility. This prediction is intuitive: increased volatility increases
IMPLIED VOLATILITIES
"... In this paper we propose analytical approximations for computing implied volatilities when timetomaturity τ is small. The analysis is performed in the framework of a twofactor model with local and stochastic volatility. We describe an algorithm for building the power series approximation of impli ..."
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of models for which this method may be accurate also for τ>> 0. In the particular case of SABR model we obtain an extension of the formula derived in Hagan et al. (2002). Key words: Option pricing, stochastic volatility, local volatility, implied volatility, short term asymptotics. JEL Classification
CAN THERE BE AN EXPLICIT FORMULA FOR IMPLIED VOLATILITY?
, 2012
"... It is “well known” that there is no explicit expression for the BlackScholes implied volatility. We prove that, as a function of underlying, strike, and call price, implied volatility does not belong to the class of Dfinite functions. This does not rule out all explicit expressions, but shows that ..."
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Cited by 1 (1 self)
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It is “well known” that there is no explicit expression for the BlackScholes implied volatility. We prove that, as a function of underlying, strike, and call price, implied volatility does not belong to the class of Dfinite functions. This does not rule out all explicit expressions, but shows
Normalization for Implied Volatility
, 2010
"... We study specific nonlinear transformations of the BlackScholes implied volatility to show remarkable properties of the volatility surface. Modelfree bounds on the implied volatility skew are given. Pricing formulas for the European options which are written in terms of the implied volatility are ..."
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We study specific nonlinear transformations of the BlackScholes implied volatility to show remarkable properties of the volatility surface. Modelfree bounds on the implied volatility skew are given. Pricing formulas for the European options which are written in terms of the implied volatility
Results 1  10
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