Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7550435 | Stochastic Processes and their Applications | 2018 | 38 Pages |
Abstract
Using large deviations techniques, we determine the asymptotic shape of the implied volatility surface in any regime of small maturity tâ0 or extreme log-strike |κ|ââ (with bounded maturity). Even if the price has continuous paths, out-of-the-money implied volatility diverges for small maturity, producing a very pronounced smile.
Keywords
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Physical Sciences and Engineering
Mathematics
Mathematics (General)
Authors
Francesco Caravenna, Jacopo Corbetta,