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https://hdl.handle.net/10419/25039
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DC Field | Value | Language |
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dc.contributor.author | Fengler, Matthias R. | en |
dc.contributor.author | Härdle, Wolfgang Karl | en |
dc.contributor.author | Mammen, Enno | en |
dc.date.accessioned | 2005-08-15 | - |
dc.date.accessioned | 2009-07-23T14:42:53Z | - |
dc.date.available | 2009-07-23T14:42:53Z | - |
dc.date.issued | 2005 | - |
dc.identifier.uri | http://hdl.handle.net/10419/25039 | - |
dc.description.abstract | A primary goal in modelling the implied volatility surface (IVS) for pricing and hedging aims at reducing complexity. For this purpose one fits the IVS each day and applies a principal component analysis using a functional norm. This approach, however, neglects the degenerated string structure of the implied volatility data and may result in a modelling bias. We propose a dynamic semiparametric factor model (DSFM), which approximates the IVS in a finite dimensional function space. The key feature is that we only fit in the local neighborhood of the design points. Our approach is a combination of methods from functional principal component analysis and backfitting techniques for additive models. The model is found to have an approximate 10% better performance than a sticky moneyness model. Finally, based on the DSFM, we devise a generalized vega-hedging strategy for exotic options that are priced in the local volatility framework. The generalized vega-hedging extends the usual approaches employed in the local volatility framework. | en |
dc.language.iso | eng | en |
dc.publisher | |aHumboldt University of Berlin, Collaborative Research Center 649 - Economic Risk |cBerlin | en |
dc.relation.ispartofseries | |aSFB 649 Discussion Paper |x2005,020 | en |
dc.subject.jel | C14 | en |
dc.subject.jel | G12 | en |
dc.subject.ddc | 330 | en |
dc.subject.keyword | smile | en |
dc.subject.keyword | local volatility | en |
dc.subject.keyword | generalized additive model | en |
dc.subject.keyword | backfitting | en |
dc.subject.keyword | functional principal component analysis | en |
dc.title | A dynamic semiparametric factor model for implied volatility string dynamics | - |
dc.type | |aWorking Paper | en |
dc.identifier.ppn | 496022024 | en |
dc.rights | http://www.econstor.eu/dspace/Nutzungsbedingungen | en |
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