This is the program for the 2010 Joint Statistical Meetings in Vancouver, British Columbia.
Abstract Details
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Activity Number:
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677
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Type:
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Contributed
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Date/Time:
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Thursday, August 5, 2010 : 10:30 AM to 12:20 PM
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Sponsor:
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Section on Nonparametric Statistics
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| Abstract - #308934 |
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Title:
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Some Reasons to Smile: Implied Volatilities in Presence of Pricing Error
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Author(s):
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Zheng Xu*+ and Song X. Chen
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Companies:
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Iowa State University and Iowa State University/Peking University
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Address:
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Department of Statistics, Ames, IA, 50010,
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Keywords:
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Option Pricing ;
Pricing Error ;
Implied Volatilities ;
Volatilities Smile ;
Bias Pattern ;
Nonparametric Estimation
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Abstract:
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In presence of pricing error, estimated implied volatilities will deviate from true implied volatilities. Researchers should be aware of this deviation before using implied volatilities surface for exploring and specifying models.
Two categories of implied volatilities(individual implied volatilities and aggregate implied volatilities) are studied.The bias of these estimated implied volatilities are evaluated. The bias can not get diminished even asymptotically.
The closed-form expression of bias function is proposed. Factors determining the bias pattern are also studied. Especially the bias-moneyness relationship is discussed. Bias under various scenarios are discussed. Sad-face, smile-face and one-side smile-face pattern all exist.
Some nonparametric methods are proposed for better estimation of implied volatilities are discussed.
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The address information is for the authors that have a + after their name.
Authors who are presenting talks have a * after their name.
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