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How to extrapolate implied volatility for out of the money options?
Estimation of model-free implied volatility is highly dependent upon the extrapolation procedure for non-traded options at extreme out-of-the-money points.
Jiang and Tian (2007) propose that the ...
9
votes
1answer
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Can VIX be interpreted as a proxy for instantaneous volatility?
BJO06 (Table 2) estimate the following Cox-Ingersoll-Ross model for market variance, $\sigma^2_t$:
$\mathrm{d}\sigma^2_t = (\alpha_0 + \alpha_1\sigma^2_t)\mathrm{d}t + ...
