Lancaster EPrints

Consequences for option pricing of a long memory in volatility

Taylor, S J (2001) Consequences for option pricing of a long memory in volatility. Working Paper. The Department of Accounting and Finance, Lancaster University.

[img]
Preview
PDF (Document.pdf)
Download (237Kb) | Preview

    Abstract

    The economic consequences of a long memory assumption about volatility are documented, by comparing implied volatilities for option prices obtained from short and long memory volatility processes. Numerical results are given for options on the S&P 100 index from 1984 to 1998, with lives up to two years. The long memory assumption is found to have a significant impact upon the term structure of implied volatilities and a relatively minor impact upon smile effects. These conclusions are important because evidence for long memory in volatility has been found in the prices of many assets.

    Item Type: Monograph (Working Paper)
    Subjects: UNSPECIFIED
    Departments: Lancaster University Management School > Accounting & Finance
    ID Code: 48615
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 22:02
    Refereed?: No
    Published?: Published
    Last Modified: 27 Jul 2012 01:11
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/48615

    Actions (login required)

    View Item