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Implied Volatility Functions: Empirical Tests
Article first published online: 17 DEC 2002
DOI: 10.1111/0022-1082.00083
The American Finance Association 1998
1540-6261/asset/cover.gif?v=1&s=5192ce61b1e4bde927ebc2df55b44b4da55ef137 "The Journal of Finance")
Additional Information
How to Cite
Dumas, B., Fleming, J. and Whaley, R. E. (1998), Implied Volatility Functions: Empirical Tests. The Journal of Finance, 53: 2059–2106. doi: 10.1111/0022-1082.00083
Publication History
- Issue published online: 17 DEC 2002
- Article first published online: 17 DEC 2002
- Abstract
- Cited By
Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) hypothesize that asset return volatility is a deterministic function of asset price and time, and develop a deterministic volatility function (DVF) option valuation model that has the potential of fitting the observed cross section of option prices exactly. Using S&P 500 options from June 1988 through December 1993, we examine the predictive and hedging performance of the DVF option valuation model and find it is no better than an ad hoc procedure that merely smooths Black–Scholes (1973) implied volatilities across exercise prices and times to expiration.