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A Least-Squares Approach for Estimating the Volatility Implied by Option Premia: Overcoming Smiles and Frowns

Overlaps of Private Sector with Public Sector around the Globe

ISBN: 978-1-78441-956-1, eISBN: 978-1-78441-955-4

ISSN: 0196-3821

Publication date: 4 July 2015

Abstract

Volatility has become a traded commodity, and the value of extricating the implied volatility for a given underlying asset’s market value from observed option premia has long been recognized. This contribution offers a least-squared error approach based on Standardized Options that offers the potential to overcome the well-known problem of “smiles and frowns.”

Keywords

Citation

Kensinger, J.W. (2015), "A Least-Squares Approach for Estimating the Volatility Implied by Option Premia: Overcoming Smiles and Frowns", Overlaps of Private Sector with Public Sector around the Globe (Research in Finance, Vol. 31), Emerald Group Publishing Limited, Bingley, pp. 173-185. https://doi.org/10.1108/S0196-382120150000031008

Publisher

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Emerald Group Publishing Limited

Copyright © 2015 Emerald Group Publishing Limited