A0293
Title: Instabilities in time-dependent implied volatility functional profiles
Authors: Matus Maciak - Charles University (Czech Republic) [presenting]
Abstract: A unique methodological approach is proposed to recognize, detect, and estimate a specific type of stochastically relevant (multiple significant) changepoints within a sequence of time-dependent functional profiles, the options' implied volatility (IV) smiles in particular. The main focus is on instabilities caused by various exogenous market effects (induced not by the market itself but rather by some human-made interactions). A robust multivariate semi-parametric estimation is employed to postulate an underlying model that complies with the financial theory on arbitrage-free markets, and a consistent statistical test for detecting significant changepoints is proposed under different theoretical assumptions and practical scenarios. The overall performance is investigated from both the theoretical as well as the empirical perspective. Important applicational issues are addressed using a real data example illustration and finite sample simulations.
