SSRN Author: Aleksandar MijatovicAleksandar Mijatovic SSRN Content
http://www.ssrn.com/author=875804
http://www.ssrn.com/rss/en-usFri, 17 Jul 2015 00:23:04 GMTeditor@ssrn.com (Editor)Fri, 17 Jul 2015 00:23:04 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0New: Arbitrage-Free Prediction of the Implied Volatility SmileThis paper gives an arbitrage-free prediction for future prices of an arbitrary co-terminal set of options with a given maturity, based on the observed time series of these option prices. The statistical analysis of such a multi-dimensional time series of option prices corresponding to n strikes (with n large, e.g. n ≥ 40) and the same maturity, is a difficult task due to the fact that option prices at any moment in time satisfy non-linear and non-explicit no-arbitrage restrictions. Hence any n-dimensional time series model also has to satisfy these implicit restrictions at each time step, a condition that is impossible to meet since the model innovations can take arbitrary values. We solve this problem for any n ∈ N in the context of Foreign Exchange (FX) by first encoding the option prices at each time step in terms of the parameters of the corresponding risk-neutral measure and then performing the time series analysis in the parameter space. The option price predictions are ...
http://www.ssrn.com/abstract=2469770
http://www.ssrn.com/1321088.htmlWed, 23 Jul 2014 05:19:39 GMT