The Mathematical Institute, University of Oxford, Eprints Archive

Parametric arbitrage-free models for implied smile dynamics

Zhao, Junchen (2010) Parametric arbitrage-free models for implied smile dynamics. Masters thesis, Mathematical Institute.

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Abstract

Based on the theory of Tangent Levy model [1] developed by R. Carmona and S. Nadtochiy, this thesis gives a paramatrized realization of dynamic implied smile.

After specifying a Dirac style Levy measure, we give argument about the consistency issue of our model with the Tangent Levy Model. A corresponding no arbitrage drift condition is derived for the parameters. Numerical setup under our model for option pricing and parameter estimation for calibration is given. Implementation results are illustrated in detail and in the end we provide with simulation results of one day ahead implied smile.

Item Type:Thesis (Masters)
Subjects:H - N > Mathematics education
Research Groups:Mathematical and Computational Finance Group
ID Code:930
Deposited By:Laura Auger
Deposited On:21 Jul 2010 07:38
Last Modified:21 Jul 2010 07:38

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