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On the short-time behavior of the implied volatility for jump-diffusion models with stochastic volatility
Alòs, Elisa; León, Jorge A.; Vives, Josep
Universitat Pompeu Fabra. Departament d'Economia i Empresa
In this paper we use Malliavin calculus techniques to obtain an expression for the short-time behavior of the at-the-money implied volatility skew for a generalization of the Bates model, where the volatility does not need to be neither a difussion, nor a Markov process as the examples in section 7 show. This expression depends on the derivative of the volatility in the sense of Malliavin calculus.
Statistics, Econometrics and Quantitative Methods
black-scholes formula
derivative operator
itô's formula for the skorohod integral
jump-diffusion stochastic volatility model
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