New formula predicts volatility of Asian options, revolutionizing financial markets.
The article explores how the implied volatility of Asian options changes when the maturity is very short. They use a mathematical technique called Malliavin calculus to calculate this implied volatility. The researchers also develop a formula that predicts how the implied volatility skews with short maturities, based on the volatility model's complexity. They test their findings on two specific models and confirm the accuracy of their formula through numerical simulations.