The Log Moment formula for implied volatility

20 Jan 2021  ·  Vimal Raval, Antoine Jacquier ·

We revisit the foundational Moment Formula proved by Roger Lee fifteen years ago. We show that when the underlying stock price martingale admits finite log-moments E[|log(S)|^q] for some positive q, the arbitrage-free growth in the left wing of the implied volatility smile is less constrained than Lee's bound. The result is rationalised by a market trading discretely monitored variance swaps wherein the payoff is a function of squared log-returns, and requires no assumption for the underlying martingale to admit any negative moment. In this respect, the result can derived from a model-independent setup. As a byproduct, we relax the moment assumptions on the stock price to provide a new proof of the notorious Gatheral-Fukasawa formula expressing variance swaps in terms of the implied volatility.

PDF Abstract
No code implementations yet. Submit your code now

Tasks


Datasets


  Add Datasets introduced or used in this paper

Results from the Paper


  Submit results from this paper to get state-of-the-art GitHub badges and help the community compare results to other papers.

Methods


No methods listed for this paper. Add relevant methods here