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2005-03-06Buch DOI: 10.18452/3886
A Dynamic Semiparametric Factor Model for Implied Volatility String Dynamics
dc.contributor.authorFengler, Matthias R.
dc.contributor.authorHärdle, Wolfgang
dc.contributor.authorMammen, Enno
dc.date.accessioned2017-06-15T22:53:52Z
dc.date.available2017-06-15T22:53:52Z
dc.date.created2005-08-31
dc.date.issued2005-03-06
dc.identifier.issn1860-5664
dc.identifier.urihttp://edoc.hu-berlin.de/18452/4538
dc.description.abstractA primary goal in modelling the implied volatility surface (IVS) for pricing and hedging aims at reducing complexity. For this purpose one fits the IVS each day and applies a principal component analysis using a functional norm. This approach, however, neglects the degenerated string structure of the implied volatility data and may result in a modelling bias. We propose a dynamic semiparametric factor model (DSFM), which approximates the IVS in a finite dimensional function space. The key feature is that we only fit in the local neighborhood of the design points. Our approach is a combination of methods from functional principal component analysis and backfitting techniques for additive models. The model is found to have an approximate 10% better performance than a sticky moneyness model. Finally, based on the DSFM, we devise a generalized vega-hedging strategy for exotic options that are priced in the local volatility framework. The generalized vega-hedging extends the usual approaches employed in the local volatility framework.eng
dc.language.isoeng
dc.publisherHumboldt-Universität zu Berlin, Wirtschaftswissenschaftliche Fakultät
dc.subjectsmileeng
dc.subjectlocal volatilityeng
dc.subjectgeneralized additive modeleng
dc.subjectbackfittingeng
dc.subjectfunctional principal component analysiseng
dc.subject.ddc330 Wirtschaft
dc.titleA Dynamic Semiparametric Factor Model for Implied Volatility String Dynamics
dc.typebook
dc.identifier.urnurn:nbn:de:kobv:11-10045403
dc.identifier.doihttp://dx.doi.org/10.18452/3886
local.edoc.container-titleSonderforschungsbereich 649: Ökonomisches Risiko
local.edoc.pages43
local.edoc.type-nameBuch
local.edoc.container-typeseries
local.edoc.container-type-nameSchriftenreihe
local.edoc.container-volume2005
local.edoc.container-issue20
local.edoc.container-year2005
local.edoc.container-erstkatid2195055-6

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