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arxiv: 1008.5055 · v2 · pith:24MM3UMCnew · submitted 2010-08-30 · 💱 q-fin.PR · math.PR

Normalization for Implied Volatility

classification 💱 q-fin.PR math.PR
keywords volatilityimpliedformulasgivenswapblack-scholesboundselegant
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We study specific nonlinear transformations of the Black-Scholes implied volatility to show remarkable properties of the volatility surface. Model-free bounds on the implied volatility skew are given. Pricing formulas for the European options which are written in terms of the implied volatility are given. In particular, we prove elegant formulas for the fair strikes of the variance swap and the gamma swap.

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