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Robust trading of implied skew

Abstract:

In this paper, we present a method for constructing a (static) portfolio of co-maturing European options whose price sign is determined by the skewness level of the associated implied volatility. This property holds regardless of the validity of a specific model — i.e. the method is robust. The strategy is given explicitly and depends only on one’s beliefs about the future values of implied skewness, which is an observable market indicator. As such, our method allows the use of existing stati...

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Publication status:
Published
Peer review status:
Peer reviewed
Version:
Accepted manuscript

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Publisher copy:
10.1142/S021902491750008X

Authors


Nadtochiy, S More by this author
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Department:
St Johns College
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Grant:
(FP7/2007-2013) / ERC grant agreement no. 335421
Publisher:
World Scientific Publishing Publisher's website
Journal:
International Journal of Theoretical and Applied Finance Journal website
Volume:
20
Issue:
2
Pages:
1750008
Publication date:
2017-02-07
Acceptance date:
2017-01-12
DOI:
ISSN:
1793-6322 and 0219-0249
Pubs id:
pubs:660353
URN:
uri:7c1e73f9-c49b-43c4-b7d7-89d68103c435
UUID:
uuid:7c1e73f9-c49b-43c4-b7d7-89d68103c435
Local pid:
pubs:660353

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