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Paper / 2021SMQ / 76985765454820
Revisiting the Implied Remaining Variance framework of Carr and Sun (2014): Locally consistent dynamics and sandwiched martingales
Claude Martini / Iacopo Raffaelli
martingales / option pricingResource overview

Revisiting the Implied Remaining Variance framework of Carr and Sun (2014): Locally consistent dynamics and sandwiched martingales

Paper2021

by Claude Martini, Iacopo Raffaelli

Tags
martingalesoption pricingstochastic calculusstochastic differential equations

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Understand this paper

Suggested foundations for stochastic processes and pricing and options and derivatives pricing. Specialist prerequisites vary by paper.

Before you read

  1. Conditional Expectation

    Understand what it means to condition on current information.

  2. Stochastic Processes, Brownian Motion and Itô's Lemma

    Follow Brownian dynamics and the second-order term in Itô calculus.

  3. The Binomial Model

    Build replication and risk-neutral probabilities in a tractable model.

  4. Market Model and Risk-Neutral Valuation

    Distinguish pricing probabilities from physical forecasts.

Go further

  1. Simulating SDEs

    Translate continuous dynamics into a numerical experiment.

  2. The Black-Scholes PDE, Formula and Implied Volatility

    Connect the pricing equation, closed-form value and implied volatility.

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