SFB 303 Discussion Paper No. B - 453

Author: Schönbucher, Philpp J.
Title: A Market Model for Stochastic Implied Volatility
Abstract: In this paper a stochastic volatility model is presented that directly prescribes the stochastic development of the implied Black-Scholes volatilities of a set of given standard options. Thus the model is able to capture the stochastic movements of a full term structure of implied volatilities. The conditions are derived that have to be satisfied to ensure absence of arbitrage in the model and its numerical implementation is discussed.
Keywords: option pricing, stochastic volatility, implied volatility
JEL-Classification-Number: G 13
Creation-Date: May 1999
URL: ../1999/b/bonnsfb453.pdf

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