On the Bachelier implied volatility at extreme strikes (2211.10232v1)

Published 18 Nov 2022 in q-fin.MF and q-fin.PR

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.

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Authors (1)

Fabien Le Floc'h

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