A Long-Term Model of the Dynamics of the S&P500 Implied Volatility Surface
Author:
- Martin le RouxMRMartin le Roux
- 1 October 2007
- journal article
- research article
- Published by Taylor & Francis in North American Actuarial Journal
- Vol. 11 (4) , 61-75
Abstract
In this paper we present an econometric model of implied volatilities of S&P500 index options. First, we model the dynamics the CBOE VIX index as a proxy for the general level of implied volatilities. We then describe a parametric model of the implied volatility surface for options with a term of up to two years. We show that almost all of the variation in the implied volatility surface can be explained by the VIX index and one or two other uncorrelated factors. Finally, we present a model of the dynamics of these factors.Keywords
This publication has 3 references indexed in Scilit:
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- Implied Volatility Functions: Empirical TestsThe Journal of Finance, 1998