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@article{Jacquier:2018:10.1137/16M1069651,
author = {Jacquier, A and Keller-Ressel, MKR},
doi = {10.1137/16M1069651},
journal = {SIAM Journal on Financial Mathematics},
pages = {171--189},
title = {Implied volatility in strict local martingale models},
url = {http://dx.doi.org/10.1137/16M1069651},
volume = {9},
year = {2018}
}

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TY  - JOUR
AB  - We consider implied volatilities in asset pricing models, where the discounted underlying is a strictlocal martingale under the pricing measure. Our main result gives an asymptotic expansion of theright wing of the implied volatility smile and shows that the strict local martingale property can bedetermined from this expansion. This result complements the well-known asymptotic results of Leeand of Benaim and Friz, which apply only to true martingales. This also shows that “price bubbles”in the sense of strict local martingale behavior can in principle be detected by an analysis of impliedvolatility. Finally we relate our results to left-wing expansions of implied volatilities in models withmass at zero by a duality method based on an absolutely continuous measure change.
AU  - Jacquier,A
AU  - Keller-Ressel,MKR
DO  - 10.1137/16M1069651
EP  - 189
PY  - 2018///
SN  - 1945-497X
SP  - 171
TI  - Implied volatility in strict local martingale models
T2  - SIAM Journal on Financial Mathematics
UR  - http://dx.doi.org/10.1137/16M1069651
UR  - http://hdl.handle.net/10044/1/50216
VL  - 9
ER  -

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