BibTex format
@article{Jacquier:2018,
author = {Jacquier, A and Roome, P},
journal = {Mathematics and Financial Economics},
title = {Black-Scholes in a CEV Random Environment},
url = {http://hdl.handle.net/10044/1/56797},
year = {2018}
}
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Citation
RIS format (EndNote, RefMan)
TY - JOUR
AB - Classical (It\^o diffusions) stochastic volatility models are not able to capture the steepness of small-maturity implied volatility smiles. Jumps, in particular exponential L\'evy and affine models, which exhibit small-maturity exploding smiles, have historically been proposed to remedy this (see~\cite{Tank} for an overview), and more recently rough volatility models~\cite{AlosLeon, Fukasawa}. We suggest here a different route, randomising the Black-Scholes variance by a CEV-generated distribution, which allows us to modulate the rate of explosion (through the CEV exponent) of the implied volatility for small maturities. The range of rates includes behaviours similar to exponential Levy models and fractional stochastic volatility models.
AU - Jacquier,A
AU - Roome,P
PY - 2018///
TI - Black-Scholes in a CEV Random Environment
T2 - Mathematics and Financial Economics
UR - http://hdl.handle.net/10044/1/56797
ER -