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arXiv · 2211.10232

On the Bachelier implied volatility at extreme strikes

Fabien Le Floc'h
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Abstract

What kind of implied volatility extrapolation is appropriate? Roger Lee proved that the Black-Scholes implied variance can not grow faster than linearly in log-moneyness. This paper investigates what happens in the Bachelier (or Normal) implied volatility world, making sure to cover the various aspects of vanilla option arbitrages.

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BibTeXRIS

Fabien Le Floc'h. 2022-11-18. On the Bachelier implied volatility at extreme strikes. https://doi.org/10.1002/wilm.11076

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