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Research output: Working paper
Research output: Working paper
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TY - UNPB
T1 - Consequences for option pricing of a long memory in volatility
AU - Taylor, S J
PY - 2001
Y1 - 2001
N2 - The economic consequences of a long memory assumption about volatility are documented, by comparing implied volatilities for option prices obtained from short and long memory volatility processes. Numerical results are given for options on the S&P 100 index from 1984 to 1998, with lives up to two years. The long memory assumption is found to have a significant impact upon the term structure of implied volatilities and a relatively minor impact upon smile effects. These conclusions are important because evidence for long memory in volatility has been found in the prices of many assets.
AB - The economic consequences of a long memory assumption about volatility are documented, by comparing implied volatilities for option prices obtained from short and long memory volatility processes. Numerical results are given for options on the S&P 100 index from 1984 to 1998, with lives up to two years. The long memory assumption is found to have a significant impact upon the term structure of implied volatilities and a relatively minor impact upon smile effects. These conclusions are important because evidence for long memory in volatility has been found in the prices of many assets.
M3 - Working paper
T3 - Accounting and Finance Working Paper Series
BT - Consequences for option pricing of a long memory in volatility
PB - The Department of Accounting and Finance
CY - Lancaster University
ER -