Stochastic volatility models generate an implied volatility surface as well as its associated dynamics. While Monte Carlo simulation is always an option, a fast and accurate approximation of the volatility surface is a useful implement for assessing any given model. In this article, we obtain such an approximation at second order in the volatility of volatility for a general class of stochastic volatility models.
Stochastic volatility's orderly smiles
The week on Risk.net, July 7-13, 2018Receive this by email