The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work So Well

Peter Christoffersen
Peter Christoffersen
[email protected]
Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada; Copenhagen Business School, 2000 Frederiksberg, Denmark; and CREATES, University of Aarhus, 8000 Aarhus, Denmark
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,
Steven Heston
Steven Heston
[email protected]
Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742
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,
Kris Jacobs
Kris Jacobs
[email protected]
Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada; and C. T. Bauer College of Business, University of Houston, Houston, Texas 77204
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Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada; Copenhagen Business School, 2000 Frederiksberg, Denmark; and CREATES, University of Aarhus, 8000 Aarhus, Denmark

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Steven Heston

[email protected]

Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742

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Kris Jacobs

[email protected]

Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada; and C. T. Bauer College of Business, University of Houston, Houston, Texas 77204

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Published Online:11 Sep 2009https://doi.org/10.1287/mnsc.1090.1065

Supplemental Material

mnsc.1090.1065-sm-ec.pdf (291 KB)

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- Predictive Modeling, Volatility, and Risk Management in Financial Markets: In Memory of Peter F. Christoffersen (Part I)
  21 September 2020 | Journal of Financial Econometrics, Vol. 18, No. 3
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  16 June 2020 | Annals of Financial Economics, Vol. 15, No. 02
- Option Pricing under Double Stochastic Volatility Model with Stochastic Interest Rates and Double Exponential Jumps with Stochastic Intensity
  Mathematical Problems in Engineering, Vol. 2020
- A Shannon Wavelet Method for Pricing American Options under Two-Factor Stochastic Volatilities and Stochastic Interest Rate
  Discrete Dynamics in Nature and Society, Vol. 2020
- Conic quantization: stochastic volatility and market implied liquidity
  6 December 2019 | Quantitative Finance, Vol. 20, No. 4
- Asymptotic expansion method for pricing and hedging American options with two-factor stochastic volatilities and stochastic interest rate
  1 March 2019 | International Journal of Computer Mathematics, Vol. 97, No. 3
- Price bias and common practice in option pricing
  13 April 2019 | Canadian Journal of Statistics, Vol. 48, No. 1
- Analytical valuation of Asian options with counterparty risk under stochastic volatility models
  14 October 2019 | Journal of Futures Markets, Vol. 40, No. 3
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- Variance disparity and market frictions
  Journal of Econometrics, Vol. 214, No. 2
- Pricing generalized variance swaps under the Heston model with stochastic interest rates
  Mathematics and Computers in Simulation, Vol. 168
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  SSRN Electronic Journal, Vol. 219
- "Up" and "Down" Levy Jumps and Market Risk Premia Implications from S&P500 Options
  SSRN Electronic Journal, Vol. 39
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Volume 55, Issue 12

December 2009

Pages iv-2051

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Received:March 02, 2007
Accepted:June 16, 2009
Published Online:September 11, 2009

Cite as

Peter Christoffersen, Steven Heston, Kris Jacobs, (2009) The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work So Well. Management Science 55(12):1914-1932.

https://doi.org/10.1287/mnsc.1090.1065

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The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work So Well

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Volume 55, Issue 12

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