@article{Jacquier:2015:aap/1444308884,
author = {Jacquier, A and Lorig, M},
doi = {aap/1444308884},
journal = {Advances in Applied Probability},
pages = {837--857},
title = {From characteristic functions to implied volatility expansions},
url = {http://dx.doi.org/10.1239/aap/1444308884},
volume = {47},
year = {2015}
}

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TY  - JOUR
AB  - For any strictly positive martingale S with an analytically tractable characteristic function, we provide an expansion for the implied volatility. This expansion is explicit in the sense that it involves no integrals, but only polynomials in log(K/S0). We illustrate the versatility of our expansion by computing the approximate implied volatility smile in three well-known martingale models: one finite activity exponential Levy model (Merton), one infinite activity exponential Levy model (Variance Gamma), and one stochastic volatility model (Heston). We show how this technique can be extended to compute approximate forward implied volatilities and we implement this extension in the Heston setting. Finally, we illustrate how our expansion can be used to perform a model-free calibration of the empirically observed implied volatility surface.
AU  - Jacquier,A
AU  - Lorig,M
DO  - aap/1444308884
EP  - 857
PY  - 2015///
SN  - 1475-6064
SP  - 837
TI  - From characteristic functions to implied volatility expansions
T2  - Advances in Applied Probability
UR  - http://dx.doi.org/10.1239/aap/1444308884
UR  - https://www.cambridge.org/core/journals/advances-in-applied-probability/article/from-characteristic-functions-to-implied-volatility-expansions/903E84303324A5E2277A8441EAAF53C2
UR  - http://hdl.handle.net/10044/1/25775
VL  - 47
ER  - 

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