VOLATILITY SMILE AT THE RUSSIAN OPTION MARKET

Using GMM to Flatten the Option Volatility Smile

The British Russian Option

Following the economic rationale of [10] and [11] we present a new class of lookback options (by first studying the canonical ‘Russian’ variant) where the holder enjoys the early exercise feature of American options whereupon his payoff (deliverable immediately) is the ‘best prediction’ of the European payoff under the hypothesis that the true drift of the stock price equals a contract drift. I...

International Transmission of Option Volatility and Skewness : When you ’ re smiling , does the whole world smile ?

Several papers have shown that volatility spills over from one stockmarket to another. By concentrating on index options, which depend on forward-looking distributions, this paper is able to take an ex ante approach to spillovers. It asks whether changes in the implied volatility and implied skewness of one market are quickly reflected in other markets, using daily data from the US, Japan and U...

Trading Volatility Spreads: A Test of Index Option Market Efficiency

If returns on two assets share common volatility components, the prices of options on the assets should be interdependent and the implied volatility spread should mean revert. We first demonstrate, using the canonical correlation method, that there is a common component among the volatilities of the returns on S&P 100 and S&P 500 indexes. We then exploit this commonality by trading on the volat...

Implied Trinomial Trees of the Volatility Smile

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