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http://dx.doi.org/10.7737/MSFE.2014.20.1.021

Implied Volatility Function Approximation with Korean ELWs (Equity-Linked Warrants) via Gaussian Processes  

Han, Gyu-Sik (Division of Business Administration, Chonbuk National University)
Publication Information
Management Science and Financial Engineering / v.20, no.1, 2014 , pp. 21-26 More about this Journal
Abstract
A lot of researches have been conducted to estimate the volatility smile effect shown in the option market. This paper proposes a method to approximate an implied volatility function, given noisy real market option data. To construct an implied volatility function, we use Gaussian Processes (GPs). Their output values are implied volatilities while moneyness values (the ratios of strike price to underlying asset price) and time to maturities are as their input values. To show the performances of our proposed method, we conduct experimental simulations with Korean Equity-Linked Warrant (ELW) market data as well as toy data.
Keywords
Implied Volatility; Volatility Smile; Gaussian Processes; Equity-Linked Warrant;
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Times Cited By KSCI : 1  (Citation Analysis)
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