IDEAS home Printed from https://ideas.repec.org/a/taf/raflxx/v2y2006i3p199-204.html
   My bibliography  Save this article

Two unconditionally implied parameters and volatility smiles and skews

Author

Listed:
  • Nikolai Dokuchaev

Abstract

The study examines estimation of parameters of diffusion market models from historical data. The standard definition of implied volatility for these models presents its value as an implicit function of several parameters, including the risk-free interest rate. In reality, the risk free interest rate is unknown and needs to be forecasted, because the option price depends on its future curve. Therefore, the standard implied volatility is conditional: it depends on the future values of the risk free rate. Two implied parameters are studied: the implied volatility and the implied average cumulative risk free interest rate. They can be found unconditionally from a system of two equations. It was found that very simple models with random volatilities (for instance, with two point distributions) generate various volatility smiles and skews with this approach.

Suggested Citation

  • Nikolai Dokuchaev, 2006. "Two unconditionally implied parameters and volatility smiles and skews," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 2(3), pages 199-204.
    • Handle: RePEc:taf:raflxx:v:2:y:2006:i:3:p:199-204
    DOI: 10.1080/17446540500426771
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/17446540500426771
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/17446540500426771?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:raflxx:v:2:y:2006:i:3:p:199-204. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/rafl20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.