Introduction In this article, together with a brief introduction to the use of option-implied information in forecasting, we would like to give an answer to the question: does Option-Implied Skewness and Kurtosis improve the predictive power of (Squared) Implied Volatilities on Future Realised Variance? In order to do so, we Read more…
The famous Black-Scholes model is a mathematical model used for pricing financial derivatives. It is particularly useful because it offers an explicit formula for the value of a European option in terms of time to expiry of the contract T, risk-free interest rate r, strike price of the option K, Read more…
One of the tools traders have found to cope with the shortcomings of the Black and Scholes models has been to allow for non-flat volatilities, which means that the implied volatility of an option does not depend merely on the historical volatility in the underlying, but also on the strike Read more…