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<p>For small values of correlation a method is given to de-correlate the instantaneous volatility from the price process in stochastic volatility models. The result of the de-correlation is that the implied volatility skew is rotated into a smile. Once the implied volatility skew has been “symmetrized", moments of realized volatility are implied from the symmetrized asset option prices. The implied moments are subsequently used in a Gram-Charlier expansion of the density of realized volatility. The Gram-Charlier density provides approximate prices for options on realized volatility and other volatility derivatives.</p>

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Realized Volatility Moments Implied by Options with Applications to the Pricing of Realized Volatility Options

  • 期刊论文

  • 发表日期：

    2025年8月4日

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  • Frido Rolloos,
  • Kenichiro Shiraya

摘要

For small values of correlation a method is given to de-correlate the instantaneous volatility from the price process in stochastic volatility models. The result of the de-correlation is that the implied volatility skew is rotated into a smile. Once the implied volatility skew has been “symmetrized", moments of realized volatility are implied from the symmetrized asset option prices. The implied moments are subsequently used in a Gram-Charlier expansion of the density of realized volatility. The Gram-Charlier density provides approximate prices for options on realized volatility and other volatility derivatives.