Capturing the volatility smile: parametric volatility models versus stochastic volatility models

Capturing the volatility smile: parametric volatility models versus stochastic volatility models

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Black-Scholes option pricing model (1973) assumes that all option prices on the same underlying asset with the same expiration date, but different exercise prices should have the same implied volatility.However, instead of a flat implied volatility Phenotypic characterization of Leishmania spp. causing cutaneous leishmaniasis in the lower Amazon region, western Pará state, Brazil, reveals a putative hybrid parasite, Leishmania (Viannia) guyanensis × Leishmania (Viannia) shawi shawi structure, implied volatility (inverting the Black-Scholes formula) shows a smile shape across strikes and time to maturity.This paper compares parametric volatility models with stochastic volatility models PHOTOSYNTHETIC PRODUCTIVITY OF LENTIL UNDER T HE ACTION OF BIOLOGICAL PREPARATIONS in capturing this volatility smile.Results show empirical evidence in favor of parametric volatility models.

Keywords: smile volatility, parametric, stochastic, Black-Scholes.JEL Classification: C14 C68 G12 G13.