Smile in the low moments

Smile in the low moments

Concept image of yellow smiley face balls

Understanding the shape of volatility smiles in option markets is one of the most active fields of research in quantitative finance (Gatheral, 2006, and Fouque, Papanicolaou & Sircar, 2000). The existence of an option smile is the sign that the standard Black-Scholes model is not an adequate representation of the stochastic dynamics of financial assets. A huge variety of models have been proposed over the years to account for the non-Gaussian nature of price changes and the corresponding option

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