On the Bachelier implied volatility at extreme strikes
Abstract
What kind of implied volatility extrapolation is appropriate? Roger Lee proved that the Black-Scholes implied variance can not grow faster than linearly in log-moneyness. This paper investigates what happens in the Bachelier (or Normal) implied volatility world, making sure to cover the various aspects of vanilla option arbitrages.
- Publication:
-
arXiv e-prints
- Pub Date:
- November 2022
- DOI:
- 10.48550/arXiv.2211.10232
- arXiv:
- arXiv:2211.10232
- Bibcode:
- 2022arXiv221110232L
- Keywords:
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- Quantitative Finance - Mathematical Finance;
- Quantitative Finance - Pricing of Securities
- E-Print:
- doi:10.1002/wilm.11076