Work

Modeling the Implied Volatility Smirk in China: Do Non‐Affine Two‐Factor Stochastic Volatility Models Work?

Year: 2025

Type: article

Abstract: ABSTRACT In this paper, we investigate alternative one‐factor and two‐factor continuous‐time models with both affine and non‐affine variance dynamics for the Chinese options market. Through extensive empirical analysis of the option panel fit and diagnostics, we find that it is necessary to include both the non‐affine feature and the multi‐factor structure. For performance evaluation, we examine various measures from both aggregate and dynamic perspectives. Our results are statistically significant.

Source: Journal of Futures Markets

DOI: 10.1002/fut.22579

Authors: Yifan Ye, Zheqi Fan, Xinfeng Ruan

Institutions: The Hong Kong University of Science and Technology (Guangzhou), Hong Kong University of Science and Technology, Xi’an Jiaotong-Liverpool University

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,240

OpenAlex ID: W4408630658

FWCI: 3.756

Cites: 62

Cited by: 4

Related to: 10