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A closed-form solution for spot volatility from options under limited data

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  • Zhang, Aoran
  • Zhou, Chunyang

Abstract

In this article, the closed-form solution for spot volatility from European options is investigated. The price of the underlying asset follows a diffusion process with stochastic volatility. This approach requires only four European option contracts, making it applicable within limited data constraints. Numerical simulations are presented to prove the effectiveness and robustness.

Suggested Citation

  • Zhang, Aoran & Zhou, Chunyang, 2024. "A closed-form solution for spot volatility from options under limited data," Finance Research Letters, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324008717
    DOI: 10.1016/j.frl.2024.105841
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    References listed on IDEAS

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    More about this item

    Keywords

    Closed-form solution; Spot volatility; Stochastic volatility; Limited data;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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