The pricing accuracy and pricing performance of local volatility models depends on the
absence of arbitrage in the implied volatility surface. An input implied volatility surface that is not …

Yet that weakness is also its greatest strength. People like the model because they can easily
understand its assumptions. The model is often good as a? rst approximation, and if you …

We propose a semiparametric factor model, which approximates the implied volatility
surface (IVS) in a finite dimensional function space. Unlike standard principal component …

It is common practice to identify the number and sources of shocks that move, eg, ATM implied
volatilities by principal components analysis. This approach, however, is likely to result in …

We evaluate the relevance of covariances in the transmission mechanism of variance spillovers
across the US stock, US bond and gold markets from July 2003 to December 2012. For …

We suggest a semi-nonparametric estimator for the call-option price surface. The estimator
is a bivariate tensor-product B-spline. To enforce no-arbitrage constraints across strikes and …

The present handbook contributions introduces the notion of the Black-Scholes-Merton implied
volatility surface and reviews its stylized facts. Static no-arbitrage conditions and recent …

We conduct an empirical comparison of static versus dynamic hedges of barrier options.
Using more than five years of data, we compare a number of static hedges from the literature …

A dynamic copula model is introduced, in which the copula structure is inferred from the
realized covariance matrix estimated from within-day high-frequency data. The estimation is …

We study two types of testing problems in a nonparametric additive model setting: We develop
methods to test (i) whether an additive component function has a given parametric form …