Ad Hoc Black and Scholes Procedures with the Time-to-Maturity

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There are two ad hoc approaches to Black and Scholes model. The relative smile approach treats the implied volatility skew as a fixed function of moneyness, whereas the absolute smile approach treats it as a function of the strike price. Previous studies reveal that the absolute smile approach is superior to the relative smile approach as well as to other sophisticated models for pricing options. We find that the time-to-maturity factors improve the pricing and hedging performance of the ad hoc procedures and the superiority of the absolute smile approach still holds even after the time-to-maturity is considered. © 2018 World Scientific Publishing Co.
Publisher
World Scientific Publishing
Issue Date
2018-03
Language
English
Article Type
Article
Citation

Review of Pacific Basin Financial Markets and Policies, v.21, no.1, pp.1 - 21

ISSN
0219-0915
DOI
10.1142/S0219091518500066
URI
http://hdl.handle.net/10203/241363
Appears in Collection
MT-Journal Papers(저널논문)
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