By Rama Cont

The Petit D'euner de los angeles Finance–which writer Rama Cont has been co-organizing in Paris because 1998–is a well known quantitative finance seminar that has steadily turn into a platform for the alternate of rules among the educational and practitioner groups in quantitative finance. Frontiers in Quantitative Finance is a variety of contemporary displays within the Petit D'euner de los angeles Finance. during this publication, prime quants and educational researchers disguise crucial rising matters in quantitative finance and concentrate on portfolio credits hazard and volatility modeling.

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Extra resources for Frontiers in Quantitative Finance: Volatility and Credit Risk Modeling

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Zuluaga, L. , J. Pena, and D. Du. (2006). Extensions of Lo’s semiparametric bound for European call options. Working paper. P1: a/b P2: c/d QC: e/f T1: g c02 JWBK302-Cont August 22, 2008 7:37 Printer: Yet to come CHAPTER 2 On Black-Scholes Implied Volatility at Extreme Strikes Shalom Benaim, Peter Friz, and Roger Lee e survey recent results on the behavior of the Black-Scholes implied volatility at extreme strikes. There are simple and universal formulae that give quantitative links between tail behavior and moment explosions of the underlying on one hand, and growth of the famous volatility smile on the other hand.

To simplify notations here, we define the functions ei (x) for i = 1, . . , m + n and x ∈ Rn+ such that ei (x) = xi for i = 1, . . , n and en+ j (x) = s j (x) for j = 1, . . , m. 3. There is no arbitrage in the one period market and there exists a state price measure µ such that: Eµ [xi ] = pi , i = 1, . . , n, Eµ [s j (x)] = pn+ j , j = 1, . . , m if and only if there exists a function f (s) : S → R satisfying: (i) (ii) (iii) (iv) f (s) is a positive semidefinite function of s ∈ S f (ei s) is a positive semidefinite function of s ∈ S for i = 1, .

P1: a/b P2: c/d QC: e/f T1: g c02 JWBK302-Cont August 22, 2008 34 7:37 Printer: Yet to come OPTION PRICING AND VOLATILITY MODELING follows. It is known, from [8] and the references therein, that X has density f with asymptotics f (k) ∼ C |k|−3/2 e−α|k|+βk as k → ±∞ These are more than enough to see that − log f is regularly varying (with index 1) and − log f (k)/k → α − β as k → +∞. The right-tail-wing formula now leads to V 2 (k)/k → ψ(α − β − 1) which is, of course, in agreement with our findings above.

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