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.

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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)
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/aacsb/disciplinebasedresearch
Subjects:
ID Code:
48615
Deposited By:
Deposited On:
11 Jul 2011 21:02
Refereed?:
No
Published?:
Published
Last Modified:
23 Oct 2020 00:01