Accounting for Biases in Black-Scholes

By David K. Backus, Silverio Foresi, Liuren Wu. 2004

151 citations recorded by the source corpus.

Subfields: Finance

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Asymptotics for Exponential Levy Processes and Their Volatility Smile: Survey and New Results (2012, result): “Under mild regularity conditions, [117], [103] use large deviation principles to demonstrate that the implied volatility surface will always flatten out for large enough maturities and finite strikes, irrespective of the underlying process assumptions, which agrees with earlier observations by [11].”
Approximation and Calibration of Short-Term Implied Volatilities under Jump-Diffusion Stochastic Volatility (2007, background): “Alternative approximations of implied volatilities are proposed by Backus et al. (1997) and Zhang and Xiang (2006).”
The Effect of Macroeconomic News on Beliefs and Preferences: Evidence from the Options Market (2006, unknown): “However, rather than approximate the density of the price of the underlying security, as they do, we follow Backus et al. (1997) in approximating the density of the log price change.”
Autoregresive conditional volatility, skewness and kurtosis (2005, background): “The joint estimation of time-varying volatility, skewness and kurtosis can be useful in testing option pricing models that explicitly introduce the third and fourth moments of the underlying asset return distribution along the lines suggested by Heston (1993), Bates (1996), and Heston and Nandi (200”