--%>

The volatility effect in an option-pricing

What are the ways to build-up the volatility effect in an option-pricing?

E

Expert

Verified

There are several ways to build the volatility-smile effect in an option-pricing model, and even have no arbitrage. The most admired are, in order of complexity, given below: deterministic volatility surface, stochastic volatility and Jump diffusion.

   Related Questions in Financial Management

  • Q : International bank crisis involving

    In brief discuss the cause & the solution(s) to the international bank crisis involving less developed countries.The international debt crisis started on August 20, 1982 while Mexico asked more than 100 U.S. and foreign banks to forgive its

  • Q : Explain the term EGARCH as of the

    Explain the term EGARCH as of the GARCH’s family.

  • Q : Calculate the weighted average cost of

    Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 37% Preferred stock: Two thousand shares of preferred are outstanding,

  • Q : Define the term XSLT Define the term

    Define the term XSLT?

  • Q : Explain maintenance of future and

    Explain maintenance of future and option margins.

  • Q : Question on optimal weights Assume you

    Assume you are interested in investing in the stock markets of 7 countries that means France, Canada, Japan, Germany, Switzerland, the United Kingdom, and the United States. Particularly, you would like to solve out for the optimal (tangency) portfolio compris

  • Q : Illustrates an example of measure of

    Illustrates an example of measure of risk aversion?

  • Q : Venture capital valuation method

    venture capital valuation method a venture capitalist wants to estimate the value of a new venture. the venture is not expected to produce net income or earnings until the end of year 5 when the net income is estimated at 1,600,000.00. A publicly traded competitor or comparable firm has current ea

  • Q : Illustrates Black–Scholes Equation with

    Illustrates Black–Scholes Equation with an example?

  • Q : Describe importance of international

    Describe importance of study international financial management?Now we are living in a world where all the major economic functions, that means consumption, production, and investment, are highly globalized.  Thus it is essential for financ