Skew modeling
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Date: 09-12-2005
Start Time:
6:00pm
End Time: 7:30pm
Speaker: Bruno Dupire, Bloomberg, New York
Location: 412 Schapiro CEPSR, Davis Auditorium
ABSTRACT
Equity markets have a volatility strike structure dominated by a strong skew. The two mechanisms that can create skews, leverage and jumps, produce markedly different evolutions of the implied volatility surface. We explore ways to disentangle these two mechanisms and investigate methods to compute a whole implied volatility surface from the mere price history. In the absence of jumps, we show what the short term skew imposes in terms of:
- Component of stochastic volatility correlated to price
- Average
behavior of ATM implied volatilities when price moves
- Optimal hedge ratio
of vanillas and show the arbitrage ability of Sticky Strike and Sticky Delta
assumptions
BIO
After having headed derivatives research teams at Société Générale, Paribas and Nikko FP, Bruno Dupire has joined Bloomberg in New York in January 2004 to develop advanced analytics. He is best known for his work on volatility modeling. He is a Fellow and Adjunct Professor at NYU. He was included in December 2002 in the Risk magazine "Hall of Fame" of the 50 most influential people in the history of derivatives.
PRESENTATION