Autori
Fusai, Gianluca
Amerio, Emanuele
Vulcano, Antonio

Titolo
Pricing of implied volatility derivates
Periodico
Università degli Studi del Piemonte Orientale 'A. Avogadro' : Facoltà di Economia - Dipartimento di Scienze Economiche e Metodi Quantitativi "SEMEQ" - Quaderni
Anno: 2003 - Volume: 03 - Fascicolo: 61 - Pagina iniziale: 1 - Pagina finale: 27

Starting from the description of the real mechanism on the basis of which implied volatilities are actually quoted by traders in option markets, we construct the risk neutral dynamics of thè implied volatility to price implied volatility futures and forward starting compound options. These are exotic derivative contracts whose payoff depends on the future implied volatility. In particular, we obtain the risk neutral drift restriction that must be satisfied by each single stochastic implied volatility on the volatility surface invariant both to time to maturity and to (forward) moneyness. Also, we show that thè instanta-neous spot volatility is a point of this volatility surface, so we can apply our technique to determine its risk neutral dynamics.




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