Normalization for Implied Volatility
Pricing of Securities
2010-09-30 v2 Probability
Abstract
We study specific nonlinear transformations of the Black-Scholes implied volatility to show remarkable properties of the volatility surface. Model-free bounds on the implied volatility skew are given. Pricing formulas for the European options which are written in terms of the implied volatility are given. In particular, we prove elegant formulas for the fair strikes of the variance swap and the gamma swap.
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Cite
@article{arxiv.1008.5055,
title = {Normalization for Implied Volatility},
author = {Masaaki Fukasawa},
journal= {arXiv preprint arXiv:1008.5055},
year = {2010}
}
Comments
15 pages