Semiparametric Modeling of Implied Volatility

The model is often good as a ?rst approximation, and if you can see the holes in the assumptions you can use the model in more sophisticated ways. Markowitz (1959), followed by Sharpe (1964) and Lintner (1965), were among the ?rst to quantify the idea of the simple equation ‘more risk means higher return’ in terms of equilibrium models.