Masaaki Fukasawa
posted by Matúš Medo
(1 September 2010)
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We study specific nonlinear transformations of the Black-Scholes implied
volatility to show remarkable properties of the volatility surface. Model-free
bounds on the implied volatility skew are given. Pricing formulas for the
European options which are written in terms of the implied volatility are
given. In particular, we prove elegant formulas for the fair strikes of the
variance swap and the gamma swap.
The Econophysics Forum
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