StocVol smile toolpack documentation: a survey of asymptotic results for stochastic volatility and exponential Lvy models e

Martin Forde

August 11, 2011

1
1.1

The SABR model

Large-time, = 1, 0

Consider the SABR model with = 1 and correlation 1 < 0 { dSt = St Yt dWt , dYt = Yt dBt ,

(1)

() where dWt dBt = dt and = 1 2 . has to be non-positive to ensure that (St ) is a martingale. Let A be a non-negative random variable with density f (a) = 1 1 1 1 P(A() da) = ( )1 e1/2a 2 , da () 2a 2a a > 0. (2)

Proposition 1.1 (see Proposition 1 in [FordeII10]). For the model in (1) we have the following large-time behaviour for put options P (k) = lim
1 1 2 2 ( 2 ) 1 ( 1 ) E(K St )+ = E(P BS (e 2 A y0 , ek , 1, 2 2 A 2 ) , t S0

(3)

where K = S0 ex and P BS (S, K, , ) = Kc ( formula with zero interest rates.

log

S 1 2 K 2

) Sc (

log

S +1 2 K 2

) is the usual Black-Scholes put option

of Mathematical Sciences, Dublin City University, Glasnevin, Dublin 9, Ireland (Martin.Forde@dcu.ie), work supported by SFI grant for the Edgeworth Centre for Financial Mathematics.

Department

1.59

1.58

1.57

1.56

0.3

0.2

0.1

0.1

0.2

0.3

Figure 1: Here we have plotted the asymptotic dimensionless implied volatility (i.e. b = 0) with y0 = = = 1 and = .1.

V (k) for the standard SABR model

1.5

1.0

0.5

0.5

1.0

1.5

2.0

Figure 2: Here we have plotted the asymptotic density p (S) of S and the asymptotic dimensionless implied volatility V (k) for the standard SABR model with S0 = 1, y0 = 1, = 1, = .2, = .5, = 0.

1.2

Large-time, < 1, = 0

Theorem 1.2 (see Theorem 3 in [FordeII10]). For the model in (1), we have the following large-time behaviour for St and S = limt St 1 1 ( 1 ) p(a, S0 , S) P(A 2 da) P(St dS) = P(S dS) = p (S) = lim t dS dS 0 F (S) = lim P(St > S) = P(S > S) = p (y)dy , t S + C (K) = lim E(St K) = S0 lim E(St K) = (S K) p (y)dy ,
t t

(4) (5)

where = y0 /, K = S0 ek , p(t, S0 , S) is the CEV density dened in (31) and K (.) denotes the modied Bessel function of the second kind.

1.3

Small-time

First consider the toy SABR model dXt = Yt dWt1 , dYt = Yt dWt2 with dWt1 dWt2 = 0. For the hyperbolic metric ds2 = y12 (d2 + d2 ) associated with this model, the heat kernel pt (r) has the following small-time behaviour x y pt (r) (
2 1 sinh r 1 r2 /2t 1 1 )( ) 2e =( ) (1 r2 + O(r3 )) er /2t 2t r 2t 12

as t 0 where r = d(0 , y0 ; x1 , y1 ) = arccosh[1 + 1 ((1 x0 )2 + (1 y0 )2 )/(y0 y1 )] is the distance from (0 , y0 ) x y x 2 x to (1 , y1 ) under the hyperbolic metric (see Molchanov[Mol75]). To obtain the transition pdf, we multiply pt (r) by x det gij to obtain 1 1 sinh r 1 r2 /2t pt (, y) = 2 ( x )( ) 2e . y 2t r Now consider the SABR model for a log stock price Xt with = 1, 0: { dXt = 1 Yt2 dt 1 Yt (dWt2 + dWt1 ) , 2 2 (6) dYt = Yt dWt2 , 1 with = 1 2 , dWt1 dWt2 = 0. If we make the change of variables x = x y, y = y, then dXt = 22 Y 2 dt + Yt dWt1 , dYt = Yt dWt2 . Thus (pre-multiplying by the drift correction term in the Molchanov/Bellaiche[Bel81] heat 1 kernel expansion, arising here from the A = ( 22 Y 2 , 0) drift term), the transition pdf for the model in (6)
x x pt (x, y) = e(1 0 )/2
2

1 1 sinh r 1 r2 /2t [1 + O(t)] ( )( ) 2e 2 2t y r

(t 0) ,

where r = d(x0 y0 , y0 , x1 y1 , y1 ). Then, by a formal application of Laplaces method as t 0 , we have the following expression for the conditional localized variance 1 1 sinh r 1 r2 /2t x x 2 E(Yt2 (Xt x1 )) = e(1 0 )/2 dy ( )( ) 2e r 2t sinh d 1 (d )2 /2t 1 x 2 1 = e(x1 y1 (0 y0 ))/2 ( (x1 > 0) , ) 2e 2E (y1 )t d where d =
d(x0 , y0 ; x1 , y1 ) x1 [ y0 +

= log

1 1 1 + 2 x0 + ( x0 )2 ] y y

is the shortest distance from (x0 , y0 ) to the line {x = x1 } and 2 y1 = x2 + 2x1 y0 + y0 1 is the (unique) minimizing y-value. Using the asymptotic expansion
0 t
2 2 1 2t 2 1 ex /2s ds = 2 ex /2t (1 + O(t)) x 2s 2 3

(t 0) ,

we obtain the following expansion for out-of-the-money call options via the Tanaka-Meyer formula as 3 1 1 t t2 1 1 sinh d 1 (d )2 /2t E(St K)+ = KE(Yt2 (Xt x1 ))dt = 2 ( ) 2e (1 + O(t)) ) S0 2 0 (d ) d 2E (y1 where K = S0 ex1 . Let ASV (x1 ) =
1 (d )2

(t 0) (7)

1 1 E (y1 )

( sinh d ) 2 Then we have the following small-time expansion for the d

1

implied volatility t (x) at log-moneyness x t (x1 ) = (x1 )2 + a(x1 )t + o(t) , 2 where (x1 ) = |x1 x0 | d(x0 , y0 ; x1 , y1 (x1 )) ASV (x1 ) 2 4 (x1 ) log . x2 ABS (x, (x1 )) (8)

a(x1 ) =

(9)

0.20

0.18

0.16

0.14

0.12

0.4

0.2

0.2

0.4

Figure 3: Here we have plotted the leading order smile (in grey) and corrected smile (in blue) for the SABR model with y0 = .1, = 1, = 1, t = .25, = .4.
0.0010

0.0005

0.4

0.2

0.2

0.4

0.0005

0.0010

0.0015

Figure 4: Here we have plotted the correction term a(x1 ) for the SABR model and the correction term computed in Eqs 44 and 45 in Paulot[Pau09] for the same numbers as above, and we nd that they agree exactly.

2
2.1

The modied SABR model

Large-time, = 1
{
dSt = St Yt dWt , dYt = 1 2 Yt dt + Yt dBt , 2

Consider the modied SABR model:

(10)

where dWt dBt = 0. Proposition 2.1 (see Proposition 3.3 in [FordeI10]). For the modied SABR model in (10) with = 1, we have the following large-time behaviour for digital and European call options on Xt x0 2 2 1 1 2 t P(X x > x) = lim 2 e 2 (y+ y + ) dy < , (11) t 0 t y2 + 2 x 1 ey ek 1 (y+y2 +2 ) F (k, 1) = lim 22 t [1 E(St K)+ ] = e 2 dy < (12) t S0 y2 + 2 where K = S0 ek > 0. Let t (k) denote the implied volatility at log-moneyness k and V (t, k) = t (k)2 t denote the dimensionless implied variance. Proposition 2.2 (see Proposition 3.4 in [FordeI10]). For the modied SABR model in (10) with = 1, V (t, k) and t (k) 0 as t . More precisely, we have the following large-time asymptotic behaviour for the implied variance V (t, k) of a put/call option with log-moneyness k V (t, k) = 1 4 log t 4 log log t + 8 log(2) + 8( k log F (k, 1)) + o(1) 2 (t ) . (13)

2.2

Large-time, < 1

Proposition 2.3 (see Proposition 3.5 in [FordeI10]). For the modied SABR model in (10) with < 1, we have the following large-time asymptotic behaviour for the stock price density pt (S) 1 V (S, ) = lim 22 t pt (S) = p(u, S0 , S) e1/2u du (14) t u 0 where p(t, S0 , S) is the CEV density dened in (31). Proposition 2.4 (see Proposition 3.3. in [FordeI10]). For the modied SABR model in (10) with < 1, we have the following large-time asymptotic behaviour for the stock price distribution pt (S) V (S, )dS < , lim 22 t P(St > K) = t K F (K, ) = lim 22 t [S0 E(St K)+ ] = (S K)V (S, )dS < (15)
t

Let t (K) denote the implied volatility at strike K and V (t, K) = t (K)2 t denote the dimensionless implied variance. Proposition 2.5 (see Proposition 3.7 in [FordeI10]). For the modied SABR model with < 1 in (10), V (t, K) and t (K) 0 as t . More precisely, we have the following large-time asymptotic behaviour for the implied variance V (t, K) of a put/call option with strike K > 0 K F (K, ) 1 log ) + o(1) V (t, K) = 4 log t 4 log log t + 8 log(2) + 8( log 2 S0 S0 (t ) (16)

0.6 0.5 0.4 0.3 0.2 0.1

10

10

Figure 5: Here we have plotted V (x, 1) = limt 1, = 1.

22 t pt (x) for the modied SABR model with S0 = 1, y0 = 1, =

0.15

0.10

0.05

k 3 2 1 1 2 3

Figure 6: Here we have plotted the true value of S0 E(St K)+ (blue) verses the large-time approximation F (k, 1)/ 22 t (grey) in (12) for t = 30, as a function of the log-moneyness k, for the same model and parameters as the plot above.
5 4 3 2 1

1 1

Figure 7: Here we have plotted the smile component 1 k log F (k, 1) of the implied variance in (13), which is symmetric 2 in the log-moneyness k.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Figure 8: Here we have plotted V (S, ) = limt 1, = 1, = .2, = .5.

0.4

22 t pt (S) for the modied SABR model with S0 = 1, y0 =

0.3

0.2

0.1

0.5

1.0

1.5

2.0

2.5

3.0

Figure 9: Here we have plotted the true value of S0 E(St K)+ (blue) verses the large-time approximation F (S, )/ 22 t (grey) in (12) for t = 30, as a function of the strike K, for the same model and parameters as the plot above.

Figure 10: Here we have plotted the smile component 8( 1 log K log F (S, )) of the implied variance in (16), which 2 is negatively skewed as we would expect, because < 1.

0.30

0.25

0.20

0.15

0.10

0.05

0.5

1.0

1.5

2.0

Figure 11: Here we have plotted the 3rd order approximation for implied variance for the Heston model in (19) (grey), the 4th order Gao-Lee approximation (blue) and the rst order estimate using Lees moment formula (dashed) for the same parameters as Eq 3.14 in [FGGS10].

The Heston model

Consider the Heston stochastic volatility model for a log stock price process Xt , dened by the following stochastic dierential equations { dXt = 1 Yt dt + Yt dWt1 , 2 (17) dYt = ( Yt )dt + Yt dWt2 with X0 = x0 R, Y0 = y0 > 0, , , y0 , > 0, || < 1 and 2 > 2 , which ensures that Y = 0 is an unattainable boundary, and W 1 and W 2 are two Brownian motions with dWt1 dWt2 = dt.

3.1

Tail asymptotics

Let a = , b = , c = and T (p) = sup{t 0 : E(epXt ) < } denote the critical moment explosion time. Dene 1 A2 A3 T (p) |p=p p = p + 1 2y0 = 2 . c 1 =

(18)

Theorem 3.1 (see Theorem 3 in Friz et al.[FGGS10]). For any positive increasing function on (0, 1) that satises limk (k) = , the Black-Scholes implied volatility admits the expansion BS (k, T )2 T = (1 k 1/2 + 2 + 3 as k , where 1 = 2( A3 1 A3 2) , A2 1 1 2 = ( ), A3 1 2 A3 2 1 1 1 3 = ( ). A3 1 2 A3 2 (20) log k (k) + O( 1/2 ))2 1/2 k k (19)

Remark 3.1 Gao&Lee have recently computed the next order term in the expansion (19), see Figure 11.

3.2

Large-time, large-strike

Theorem 3.2 (see Theorem 2.2 in [FJM10]). For the Heston model in (17), let = and assume that = > 0. Then we have the following large-time xt behaviour for the price of a call option of strike S0 e on St = eXt )+ 1 ( E St S0 ext S0 =
1 1 (1 ext )1{x< 2 } + 1{ 1 <x< 2 } + 2

1 1 1 t 1 + (1 1 e 2 )1{x= 1 } 2 2 {x= 2 } 2 (21)

+ et(V where V (p ) 1

(x)x))

A(x) 1 [1 + O( )] t 2t

(t ) ,

U (p (x)) (p2 (x)p (x))

1 (x R \ { 2 , 1 }) 2

A(x)

(p (x)) sgn(x)( 1 V (p (x)) 6 V

(22) U (p (x))

(x

{ 1 , 1 }), 2 2 (23) (24) (25) of V .

[ p d(ip)] , 2 2 V (p) y0 + 2 log(1 g(ip))], U (p) = exp[ ik d(k) g(k) = , d(k) = ( ik)2 + 2 (ik + k 2 ), ik + d(k) 2 +x 2 +42 4 wherre p (x) = 2(12 ) + 2(12 ) x2 2 +2x+2 2 and V (x) = p (x)x V (p (x)) is the Legendre transform V (p) = Now let ABS (x, )
VBS (x, )

3 x2 1 4 4

(x = 1 2 ) , 2 (x = 1 2 ) , 2

1 (x + 1 2 )2 2 . 2 2

1 Theorem 3.3 (see Theorem 3.1 in [FJM10]). Consider x R such that x = 1 and x = 2 , and let t (x) denote 2 the implied volatility at maturity t for a log-moneyness x. Then we have the following large-time expansion for the large-time, large-strike regime A(x) 8 log( ABS (x, (x)) ) 1 2 2 t (xt) = (x) + + o( ), (26) 4x2 t t 4 (x) 1

where the leading order term is given by { 2(2V (x) x 2V (x)2 V (x)x) 2 (x) = 2(2V (x) x + 2 V (x)2 V (x)x) Proposition 3.4 (see Proposition 1 in Gatheral&Jacquier[GJ10]). We have the following SVI parametrization for (x) 2
2 (x) = SV I (x) = 2

1 (x > 2 or x < 1 ) , 2 1 (x ( 2 , 1 )). 2

(27)

1 [1 + 2 x + (2 x + )2 + 2 ] , 2

(28)

where 1 =

4 2 2 [

(2 )2 + 2 2 (2 )], 2 = /.

0.50

0.10

0.05

0.05

0.10

0.45

0.005
0.40

0.35

0.010
0.30

0.25

0.015
2 1 1 2

Figure 12: Here we have plotted the leading order term smile (x) and the correction term 8 large-time, large-strike limit for the Heston model for = 1.15, = .2, y0 = = .04, = .4.

log( A

A(x)

BS (x, (x)) 4x2 1 (x) 4

in the

Theorem 3.5 (see Lemma 2.6 in [FJM10]). We have the following asymptotic behaviour for call options of xed strike under the Heston model 1 u(k0 ) U (p (0)) E(St K)+ 1 2 ex eik0 x eV (0)t = 1 ex ep (0)x eV (0)t S0 (k0 ik0 ) 2 (k0 )t (p (0)2 p (0)) 2V (p (0))t (29) as t , where K = S0 ex and k0 = ip (0). Theorem 3.6 (see Theorem 3.2 in [FJM10]). Consider x R such that x = 1 and x = 1 , and let t (x) denote the 2 2 implied volatility at maturity t for a xed log-moneyness equal to x. Then we have the following asymptotic expansion u(k0 ) (k0 ) 8 x 1 2 2 t (x) = (x) + (4 + 8ik0 ) + o( ) . 2 t (k0 ik0 ) (k0 ) t t as t .

3.3

Small-time

Theorem 3.7 Under the Heston model (17) we have the following small-time behaviour for call options with strike K = S0 ex 1 (S0 K)+ + e t(x) [ A(x) t3/2 + O(t5/2 )], if x = 0, S0 2 1 + E(St K) = ) y0 S0 t Bt3/2 + O(t5/2 , if x = 0,
2

as t 0, where A(x) = ex U (p (x)) , p (x)2 (p (x))

U (p) = exp[

1 g0 eid0 p ((i )ip 2 log( ))] 2 1 g0 eid0 p (i d0 )(1 eid0 p )(g1 id1 g0 p) exp[ ((i )id1 p + ( d1 )(1 eid0 p ) )], (1 g0 eid0 p ) 2 1 g0 eid0 p 1 2 2 B= ( 2 (1 ) + y0 (y0 3) 6( y0 )), 48 y0 4 (x) is the Legendre transform of (p) and d0 = cp , d1 =
i(2) cp , 2

where (p) =
icp i+cp ,

y0 p , ( 12 cot( 1 p 12 )) 2 (2)cp g1 = (i+cp )2 , cp = 1{p0} .

g0 =

0.25

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0.21

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0.4

0.2

0.2

0.4

Figure 13: Here we have plotted the leading order term (in grey) and correction term (blue) in the small-time limit for the Heston model for = 1.15, = .2, y0 = = .04, = .4, t = .25.

The CEV model

The constant elasticity of variance(CEV) diusion process is dened by the SDE

dSt = St dWt

(30)

1 with (0, 1), > 0, S0 > 0. The origin is an exit boundary for ( 2 , 1), and a regular boundary for 1 , which 2 we specify as absorbing to ensure that (St ) is a martingale. The transition density for the CEV process is given by
2 S 2 2 S0 S 2 + S 2 S S p(t, S0 , S) = exp( 0 2 2 )I ( 0 2 2 ) 2 ||t 2 t t

(S > 0) ,

(31)

where = 1, =

1 |, 2|

and I (.) is the modied Bessel function of the rst kind.

4.1

Large-time

Proposition 4.1 We have the following large-time behaviour for call options under the standard CEV model in (30) S0 E(St K)+ = E(St K) = aKt1/2|| (1 + o(1)) where a = a(, , S0 ) =
(1( 2 ))1/2|| . (1+1/2||)
2 S0 2 2

(t ) ,

(32)

0.10

0.030

0.025 0.08

0.020 0.06 0.015 0.04 0.010

0.02 0.005

0.6

0.8

1.0

1.2

1.4

0.6

0.8

1.0

1.2

1.4

Figure 14: Here we have plotted the true value of S0 E(St K)+ = E(St K) as a function of K for the CEV model (in grey) against the large-time approximation given in (32) (blue) for t = 30 years (left) and t = 100 years (right), and S0 = 1, = 1, = .5.

4.2

Small-time

For a one-dimensional diusion process dSt = St (St )dWt , Gatheral et al.[GHLOW09] prove the following small-time expansion for the implied volatility (K, t) at strike K and time-to-maturity t (S0 )(K) 0 (K)3 (K, t) = 0 (K) + ln t + O(t2 ) , (33) K 0 (K) (ln S )2
0

where 0 (K) = ( log1 K (S) = S

1

S0

du )1 S0 u(u)

is the well known leading order term. For the CEV model, we just use (33) with

5
5.1

An Exponential Lvy model e

Large-strike

Tail asymptotics for implied volatility under the CGMY model are given in [Forde11] (see also Figure 15).

5.2

Large-time, large-strike

For this regime, we have a similar result to Theorem 3.3 (see forthcoming paper by Figueroa-Lpez&Forde[FLF11] and o Figure 15).

ImpliedVol

2.4

2.2

2.0

1.8

1.6

x 8 10 12 14 16

Figure 15: Here we have plotted the large-strike implied volatility obtained numerically using an inverse Fourier tranform (blue) verses the Gulisashvili approximation (grey) and the Gao-Lee rened approximation (dashed) for the CGMY model with C = 1, Y = .5, M = 2, G = 1, t = 1.

5.3

Small-time
St = S0 eXt

Consider an exponential Lvy model for a stock price process e (34) where (Xt ) is a Lvy process dened on a complete probability space (, P, F) with generating triplet ( 2 , b, ). We e assume that |x|>1 ex (dx) < and that the following condition is satised 1 b + 2 + (ex 1 x1|x|1 )(dx) = 0, (35) 2 so that St = S0 eXt is a martingale relative to its own ltration. We assume that the Lvy measure (dx) admits a e positive density, denoted (x), and that this density is C 1 in R\{0} satisfying sup|x|> (x) < for every > 0. Let d2 (y) 1 = d2 (y; b, , s) = 2 (y) + 2b(y) [y, )2 + ( y, y)2 2 1 2y y + 2 (u)(x)dudx 2(y) x(x)dx + 2(y)
yx
1 2 y<|x|<1

1 2y

If the pure-jump component of (Xt ) has nite variation, i.e. d2 (y) = d2 (y; b, , ) = 2 (y) + 2b0 (y) [y, )2 + where b0 is the drift of the process X dened by b0 = b Proposition 5.1 (see Proposition 2.2. in [FLF10]). Assume that (i) ex (x)dx <
|x|>1

|x|1 y

1 2y

((u) (y))(x)dudx . (36)

yx

|x|(dx) < , then d2 simplies to yx y (u)(x)dudx , (u)(x)dudx 2

y

yx

|x|1

x(dx).

and

(ii) sup ex (x) < ,

|x|>

(37)

for any > 0. Then we have the following small-time expansion for the price of a call option with strike K > S0 ] 1 [ 1 E(St K)+ = S0 (ex ek )+ (x)dx + S0 d (k) ek d2 (k) t + o(t) (t 0) , (38) 2 t 2 where k = log
K S0

> 0 is the log-moneyness and d (k) = d2 (k; b , , ) with b and (dx) given by 2 ( ) (dx) = ex (x)dx and b = b + x ex 1 (x)dx + 2 .
|x|1

(39)

1.30

0.21

0.22

1.25

0.23

0.24

0.25
1.20

0.26

0.5

0.5

1.0

1.5

1.0

0.5

0.5

1.0

Figure 16: In the left gure we have plotted the asymptotic smile (x) (grey), the corrected smile (x)2 + a(x)t 2 2 (dashed) and the smile obtained numerically using an inverse Fourier transform along the approximate horizontal contour of steepest descent kr + ip (x) (blue), for the large-time, large log-moneyness regime for the CGMY model with C = 1, Y = 0.5, M = 2; G = .5 for T = 5 years. We see that the corrected smile is almost indistinguishable from the numerical smile. In the right gure we have plotted the correction term a(x).
1.214

1.212

1.210

1.208

1.5

1.0

0.5

0.5

1.0

1.5

Figure 17: Here we have plotted the asymptotic smile (0) (grey), the corrected smile (0)2 + a1 (x)t (dashed) 2 2 and the smile obtained numerically using an inverse Fourier transform along the approximate horizontal contour of steepest descent kr + ip (0) (blue), for the large-time, xed log-moneyness regime for the CGMY model with C = 1, Y = 0.5, M = 2; G = .5 for T = 15 years.

0.6

0.5

0.4

0.3

0.2

0.4

0.6

0.8

1.0

Figure 18: Here we have plotted the true call option value (in blue, computed numerically using an inverse Fourier transform) verses the leading order term in the small-time expansion in (38)(grey) for the CGMY model with C = 1, Y = 0.5, M = 2; G = M, t = .05.

References
[Bel81] Bellaiche, C., Comportement asymptotique de pt (x, y), Astrique, 84-85, pp. 151-187, (1981). e [FLF10] Figueroa-Lpez, J. and M.Forde, The small-maturity smile for exponential Lvy models, (2010), submitted. o e [FLF11] Figueroa-Lpez, J. and M.Forde, The large-time smile and skew for exponential Lvy models, (2011). o e [Forde11] Forde, M., Tail estimates for Lvy processes, with applications to insurance risk processes and implied e volatility, talk at Manchester University, February 2011. [FordeI10] Forde, M., Exact pricing and large-time asymptotics for the modied SABR model and the Brownian exponential functional (2010), forthcoming in International Journal of Theoretical and Applied Finance [FordeII10] Forde, M., The large-maturity smile for the SABR model with non-zero correlation, 2010 (submitted). [FJ09] Forde, M. and A.Jacquier, The Large-maturity smile for the Heston model, 2009, forthcoming in Finance and Stochastics. [FJM10] Forde, M., A.Jacquier and A.Mijatovic, Asymptotic formulae for implied volatility in the Heston model, forthcoming in the Proceedings of the Royal Society A. [FGGS10] Friz, P., S.Gerhold, A.Gulisashvili, S.Sturm, On Rened Volatility Smile Expansion in the Heston Model, 2010, forthcoming in Quantitative Finance. [GHLOW09] Gatheral,G., E.Hsu, P.Laurence, C.Ouyang and T-H.Wang, Asymptotics of implied volatility in local volatility models, (2009), forthcoming in Mathematical Finance. [GJ10] Gatheral, J. and Jacquier, A., Convergence of Heston to SVI, forthcoming in Quantitative Finance. [GL11] K.Gao and Lee, R. (2011), Asymptotics of Implied Volatility in Extreme Regimes, Preprint. [Mol75] Molchanov, S., Diusion processes and Riemmanian geometry, Russian Math. Surveys 30:1, 1-63, (1975). [Pau09] Paulot, L., Asymptotic Implied Volatility at the Second Order With Application to the SABR Model, working paper.