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
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