Journal
SIAM JOURNAL ON FINANCIAL MATHEMATICS
Volume 1, Issue 1, Pages 609-641Publisher
SIAM PUBLICATIONS
DOI: 10.1137/090762713
Keywords
call and put pricing functions; implied volatility; asymptotic formulas; Pareto-type distributions; regularly varying functions
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In this paper, we obtain asymptotic formulas with error estimates for the implied volatility associated with a European call pricing function. We show that these formulas imply Lee's moment formulas for the implied volatility and the tail-wing formulas due to Benaim and Friz. In addition, we analyze Pareto-type tails of stock price distributions in uncorrelated Hull-White, Stein-Stein, and Heston models and find asymptotic formulas with error estimates for call pricing functions in these models.
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