涩里番

Federico Bandi

Johns Hopkins University

Ultra-short-term volatility surfaces

Date: Friday, May 1, 2026
Time: 10:30-11:45 am
Location: Armstrong Bldg, Room 255

All are cordially invited to attend.

Abstract:

Options with maturities below one week, hereafter ultra-short-term options, have seen a sharp increase in trading activity in recent years. Yet, these instruments are difficult to price jointly using classical pricing models due to the pronounced oscillations observed in the at-the-money implied-volatility term structure across ultra-short-term tenors. We propose Edgeworth++, a parsimonious jump鈥揹iffusion model featuring a nonparametric stochastic volatility component, which provides flexibility in capturing the implied-volatility smiles for each tenor, combined with a deterministic shift extension, which allows the model to fit rich at-the-money implied-volatility term structures across tenors. We derive a local (in tenor) expansion of the process characteristic function suited to value ultra-short-term options. The expansion leads to fast and accurate option pricing in closed form via standard Fourier inversion. We discuss the benefits of the proposed approach relative to natural benchmarks.