Saddle-Point Approach to Large-Time Volatility Smile
Mathematical Finance
2022-12-13 v1
Abstract
We extend upon the saddle-point equation presented in [1] to derive large-time model-implied volatility smiles, providing its theoretical foundation and studying its applications in classical models. As long as characteristic function fulfills a L\'evy-type scaling behavior in large time, the approach allows us to study analytically the large-time smile behaviors under specific models, and moreover, to reach a very wide class of arbitrage-free model-inspired parametrizations, in the same manner as stochastic-volatility-inspired (SVI).
Keywords
Cite
@article{arxiv.2212.05671,
title = {Saddle-Point Approach to Large-Time Volatility Smile},
author = {Chun Yat Yeung and Ali Hirsa},
journal= {arXiv preprint arXiv:2212.05671},
year = {2022}
}