Extrinsic value actual representation

LM3886 said:
The extrinsic value must be non-smooth ATM. Because it’s the difference of overall value and intrinsic value. The former is smooth and the latter is non-smooth. So the ATM kink is expected.
More...
In the link attached
https://www.desmos.com/calculator/dzppcqv2tk?lang=it

I made an animated function with the time value graph, it is clickable in the parameters s (the volatility) and k (the strike).
You can see that with low volatility (till 20%), the time value is perfectly symmetrical for ITM and OTM, but when volatility increases the time value goes up much much more in ITM than OTM.

Could you elaborate on the rationale for this behavior?
Thank you very much


p.s. this is with option value and extrinsic value integrated
https://www.desmos.com/calculator/k7o9w4vd2y?lang=it
 
Last edited:
nuandabi said:
In the link attached
https://www.desmos.com/calculator/dzppcqv2tk?lang=it

I made an animated function with the time value graph, it is clickable in the parameters s (the volatility) and k (the strike).
You can see that with low volatility (till 20%), the time value is perfectly symmetrical for ITM and OTM, but when volatility increases the time value goes up much much more in ITM than OTM.

Could you elaborate on the rationale for this behavior?
Thank you very much


p.s. this is with option value and extrinsic value integrated
https://www.desmos.com/calculator/k7o9w4vd2y?lang=it
More...
It is asymmetrical in linear scale, but should be symmetrical in log scale. You can try to change the x-axis to log scale and see if they are more symmetrical. My understanding is it is due to the lognormal return distribution.
 
You must log in or register to reply here.
Back
Top