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CPQF Working Paper Series, Frankfurt School of Finance and Management >
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http://hdl.handle.net/10419/40192
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| Title: | | Vanna-volga pricing  |
| Authors: | | Wystup, Uwe |
| Issue Date: | | 2008 |
| Series/Report no.: | | CPQF Working Paper Series 11 |
| Abstract: | | The vanna-volga method, also called the traders rule of thumb is an empirical procedure that can be used to infer an implied-volatility smile from three available quotes for a given maturity. It is based on the construction of locally replicating portfolios whose associated hedging costs are added to corresponding Black-Scholes prices to produce smile-consistent values. Besides being intuitive and easy to implement, this procedure has a clear financial interpretation, which further supports its use in practice. |
| Document Type: | | Working Paper |
| Appears in Collections: | | CPQF Working Paper Series, Frankfurt School of Finance and Management
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