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Stochastic Volatility Smile Analysis by IB is a document available to read on EtoBox.

1) The document derives the volatility smile for multi-factor stochastic volatility models up to second order in volatility-of-volatility. 2) It shows that the smile is quadratic in log-moneyness and depends on three effective quantities involving the dynamics of spot and forward variances. 3) It provides explicit expressions for these quantities for Heston-like and Bergomi models, finding good agreement for typical equity volatility-of-volatility levels.

Author

IB

Language

EN