Please use this identifier to cite or link to this item: http://hdl.handle.net/11718/21714
Title: Dynamics of the volatility surface
Authors: Kushwah, Aseem
Seth, Gunjan
Keywords: Volatility surface
Issue Date: 2016
Publisher: Indian Institute of Management Ahmedabad
Series/Report no.: SP_2091;
Abstract: Our project aims to analyze the volatility surface observed in options market. The intricacies of the volatility surface have challenged the traders and academicians across the world for the last 25 years. In our project, we have explored some of these challenges and their consequences. We started by examining the volatility smile exhibited across different asset classes. The market quoting conventions of the FX markets are studied in detail, and the volatility greeks are defined. Since the Black Scholes model fails to incorporate the volatility smile, traders have developed complex procedures to value and hedge the options. The Vanna Volga method - one such model to correct the Black Scholes pricing of options, is discussed in the report. Next we have explored the popular methods of modelling the volatility smile. The local volatility models and the stochastic volatility models are intuitively analyzed and their advantages and limitations are discussed. In the final part of our project we have implemented the local volatility model for the Indian equity options (CNX NIFTY Index). We have checked the consistency of the model by using it to compute the European option prices and comparing it with the available market data. The results of our project are presented in the report.
URI: http://hdl.handle.net/11718/21714
Appears in Collections:Student Projects

Files in This Item:
File Description SizeFormat 
SP_2091.pdf
  Restricted Access
1.58 MBAdobe PDFView/Open Request a copy


Items in IIMA Institutional Repository are protected by copyright, with all rights reserved, unless otherwise indicated.