Estimating Volatility from ATM Options with Lognormal Stochastic Variance

Abstract

We propose a non-linear State Space representation to model ATM implied volatilities and to estimate the unobserved stochastic volatility for the underlying asset. We are able to estimate the average volatility risk premia and we can also address the presence of long memory in the unobserved volatility factor. We then applied our methodology to implied… (More)

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