In this article, we give a general treatment of the Vanna-Volga mark-to-market volatility smile correction in application to pricing of contracts with European exercise on a single underlying. The method remains applicable in cases of delayed or misaligned expiries and absolute dividends. It is also applied to cases of time-dependent instantaneous volatility, multiple underlying assets and random interest rates. We also offer computation of the underlying volatility from market data and most valuable correction using more than three traded options.

Author: Yuriy Shkolnikov

Download Numerix Research Paper

Complete the form below to download this complimentary research paper.

Select Form: 

Form #5: Research

Keep me informed of future research from Numerix:

Sign me up to receive "Thinking Derivatively" monthly newsletter by Numerix:

* Required fields
quantitative research

STIRs and OIS Futures in the Hull-White Model

video blog

Numerix: Pushing Boundaries to Create Breakthrough Technology

video blog

What is Numerix Oneview?

newsletter issue - Nov 5, 2019

Thinking Derivatively - November 2019 Issue

newsletter issue - Oct 8, 2019

Thinking Derivatively - October 2019 Issue

newsletter issue - Sep 10, 2019

Thinking Derivatively - September 2019 Issue

newsletter issue - Aug 12, 2019

Thinking Derivatively - August 2019 Issue

video blog

Accelerate Your LIBOR Transition

newsletter issue - Jul 17, 2019

Thinking Derivatively - July 2019 Issue

press release - Jun 21, 2019

New Book “Modern SABR Analytics” Authored by Numerix Focuses on How to Enhance the SABR Model for...

on-demand webinar

On-Demand Resource | Dawn of Alternative Reference Rates: Curve Construction Fundamentals

white paper

White paper | LIBOR Will Not Transition Quietly: What You Need to Know Now