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Journal article

Fine-tune your smile: Correction to Hagan et al

Abstract:
In this small note we use results derived in Berestycki et al. to correct the celebrated formulae of Hagan et al. We derive explicitly the correct zero order term in the expansion of the implied volatility in time to maturity. The new term is consistent as β → 1. Furthermore, numerical simulations show that it reduces or eliminates known pathologies of the earlier formula.
Publication status:
Published
Peer review status:
Reviewed (Other)

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Department:
Oxford, MPLS, Mathematical Institute
Role:
Author
Publisher:
Willmott Publisher's website
Journal:
Wilmott Magazine Journal website
Volume:
2008
Publication date:
2008-05-05
Pubs id:
pubs:189180
URN:
uri:93e64c7b-d4f5-4bf5-b434-7b862d768a0f
UUID:
uuid:93e64c7b-d4f5-4bf5-b434-7b862d768a0f
Local pid:
pubs:189180
Paper number:
May

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