New answers tagged calibration
At long maturities, the real problem tends more to be model error than volatility estimation: over that kind of time period most companies undergo significant capital structure changes, for which there are very few models.
I took a look at the paper and would contend that it is a typo. I would assume he just copy-pasted the equation - for it is exactly the same for the two factor model cf. eq (157) and eq (41) If you follow his reasoning and his notation it would make no sense to use the observed sample variance. He always denotes the variace by $\sigma^2$ and the ...
Top 50 recent answers are included