Is volatility skew proportional to the ATM volatility of the underlying
- Thread starter traider
- Start date
Re: "
Is volatility skew proportional to the ATM volatility of the underlying"
No!
Is volatility skew proportional to the ATM volatility of the underlying"
No!
WHY?
Quick glance,it certainly appears that way, doesnt it??
Keep in mind,its a quiet low vol market and I am guessing implied correlation is low
Keep in mind,its a quiet low vol market and I am guessing implied correlation is low
Matt_ORATS
Sponsor
We use delta to normalize the measurement of skew or what we call slope.
At-the-money volatility is the implied volatility at the 50 delta call and put. Strike Slope is a measure of the amount that implied volatility changes for every increase of 10 call delta points within the intra-month skew. It measures how lopsided the 'smile' or 'smirk' is. The derivative is a measure of the rate at which the strike slope changes for every increase of 10 call delta points within the intra-month skew. It measures the curvature of the intra-month skew or 'smile.' We chose just two parameters to describe the skew to get a reasonable fit for the fewest assumptions.
At-the-money volatility is the implied volatility at the 50 delta call and put. Strike Slope is a measure of the amount that implied volatility changes for every increase of 10 call delta points within the intra-month skew. It measures how lopsided the 'smile' or 'smirk' is. The derivative is a measure of the rate at which the strike slope changes for every increase of 10 call delta points within the intra-month skew. It measures the curvature of the intra-month skew or 'smile.' We chose just two parameters to describe the skew to get a reasonable fit for the fewest assumptions.