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| Author: | Skiadopoulos, G. Hodges, S. |
| Title: | Simulating the evolution of the implied distribution |
| Journal: | European Financial Management
2001 : DEC, VOL. 7:4, p. 497-521 |
| Index terms: | DISTRIBUTION SIMULATION STOCHASTIC PROCESSES SIMULATION |
| Language: | eng |
| Abstract: | Motivated by the implied stochastic volatility literature (Britten-Jones and Neuberger, forthcoming; Derman and Kani, 1997; Ledoit and Santa-Clara, 1998) this paper proposes a new and general method for constructing smile-consistent stochastic volatility models. The method is developed by recognising that option pricing and hedging can be accomplished via the simulation of the implied risk neutral distribution. |
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