Dear all,
I am stuck with the following problem: I want to get a
short term volatility surface (volatility term
structure + smile) for equity index.
Since there is a market for standardized options on
equity index, I can get a volatility smile using
reverse engineering for each existing term (one per
month). If by example, the shortest expiration is for
september 31st, on september 2nd I will have a smile
for 28 days options, on 3rd for 27 days options,
etc...
After a complete month, I will have a smile for 1 to
30 days options, but estimated at different time and
market situations. Thus what I do is a kind of
updating, using a GARCH(1,1) model according to the
"age" of the estimation and the term.
Then I get my volatility surface......
I plan to use an implied binomial tree using this
surface.
What do you think?
How to deal with short term volatility when there
isn't a market for it (unlike the forex by example )?
Thank you for your help
Adrien veillard
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Adrien Veillard
Flat A, 10th floor Prime Mansion
1 Fleming Street
Wan Chai, Hong Kong
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Phone: Office 852 211 659 21, Mobile 852 952 76 507
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