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Analogy Making and the Structure of Implied Volatility Skew
2014
Social Science Research Network
An analogy based call option pricing model is put forward. The model provides a new explanation for the implied volatility skew puzzle and is consistent with empirical findings regarding leverage adjusted option returns. It explains puzzling superior performance of covered call writing and worse-than-expected performance of zero-beta straddles. The analogy based stochastic volatility and the analogy jump diffusion models are also developed. The analogy based stochastic volatility model
doi:10.2139/ssrn.2465738
fatcat:nugpuarw75bkvfvzbvvix2shqm