Monotonicity of implied volatility for perpetual put options

We define and study properties of implied volatility for American perpetual put options. In particular, we show that if the market prices are derived from a local volatility model with a monotone volatility function, then the corresponding implied volatility is also monotone as a function of the str...

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Bibliographic Details
Published inJournal of applied probability Vol. 61; no. 1; pp. 301 - 310
Main Authors Ekström, Erik, Mellquist, Ebba
Format Journal Article
LanguageEnglish
Published Cambridge, UK Cambridge University Press 01.03.2024
Subjects
American options
Arbitrage
Implied volatility
Original Article
Partial differential equations
Put & call options
Securities prices
Volatility
volatility skew
volatility skew
American options
Implied volatility
60G40
91G20
Online AccessGet full text
ISSN0021-9002
1475-6072
1475-6072
DOI10.1017/jpr.2023.36

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Summary:We define and study properties of implied volatility for American perpetual put options. In particular, we show that if the market prices are derived from a local volatility model with a monotone volatility function, then the corresponding implied volatility is also monotone as a function of the strike price.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 14
ISSN:0021-9002
1475-6072
1475-6072
DOI:10.1017/jpr.2023.36