Comparison of Several Implied Volatility Models

Abstract

The implied volatility is an important parameter when the trader need to quote the prices of options. The famous B-S Model assumes that the implied volatility surface is a constant independent of the option’s strike and time to maturity. But empirical analysis has proved that implied volatility surface is a non-flat function. There are several popular methods to construct the implied volatility surface. In this paper, the parameter affection and performance of several models are compared and tested by using empirical analysis.