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On the short-time behavior of the implied volatility for jump-diffusion models with stochastic volatility

By Elisa Alòs, Jorge A. León and Josep Vives

Abstract

In this paper we use Malliavin calculus techniques to obtain an expression for the short-time behavior of the at-the-money implied volatility skew for a generalization of the Bates model, where the volatility does not need to be neither a difussion, nor a Markov process as the examples in section 7 show. This expression depends on the derivative of the volatility in the sense of Malliavin calculus.Black-Scholes formula, derivative operator, Itô's formula for the Skorohod integral, jump-diffusion stochastic volatility model

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