Abstract
We develop call option price approximations for both the market index and an individual asset using a singular perturbation of a continuous-time capital asset pricing model in a stochastic volatility environment. These approximations show the role played by the asset's beta parameter as a component of the parameters of the call option price of the asset. They also show how these parameters, in combination with the parameters of the call option price for the market, can be used to extract the beta parameter. Finally, a calibration technique for the beta parameter is derived using the estimated option price parameters of both the asset and market index. The resulting estimator of the beta parameter is not only simple to implement but has the advantage of being forward looking as it is calibrated from skews of implied volatilities.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
