Calibration of Stock Betas from Skews of Implied Volatilities

  title={Calibration of Stock Betas from Skews of Implied Volatilities},
  author={Jean-Pierre Fouque and Eli Kollman},
We develop call option price approximations for both the market index and an individual asset using a singular perturbation of a continuous time Capital Asset Pricing Model (CAPM) in a stochastic volatility environment. These approximations show the role played by the asset’s beta parameter as a component of the parameters of the call option price of the asset. They also show how these parameters, in combination with the parameters of the call option price for the market, can be used to extract… CONTINUE READING

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