Asymptotics of Implied Volatility in Local Volatility Models

J. Gatheral, E.P. Hsu, P. Laurence, C. Ouyang, T.-H. Wang

Research output: Contribution to journalArticlepeer-review

86 Scopus citations


Using an expansion of the transition density function of a one-dimensional time inhomogeneous diffusion, we obtain the first- and second-order terms in the short time asymptotics of European call option prices. The method described can be generalized to any order. We then use these option prices approximations to calculate the first- and second-order deviation of the implied volatility from its leading value and obtain approximations which we numerically demonstrate to be highly accurate.
Original languageEnglish
JournalMathematical Finance
StatePublished - 2010


Dive into the research topics of 'Asymptotics of Implied Volatility in Local Volatility Models'. Together they form a unique fingerprint.

Cite this