Volatility Smiles
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About the Lecture
The lecture Volatility Smiles by Edu Pristine is from the course Archiv - Market Risks. It contains the following chapters:
- Introduction
- Put Call Parity
- Foreign Currency Options
- Implied & Lognormal Distribution
- Equity Options
- Other Volatility Smiles
- Volatility Term Structure
- Impact on calculation of "Greeks"
- Impact of Asset Price jumps
Author of lecture Volatility Smiles
Edu Pristine
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Excerpts from the accompanying material
... is a pattern exhibited where in and out of the money options are observed to have ...
... relatively low for ATM options. Progressively higher as options moves into ITM or OTM Implied distribution has heavier ...
... banks over the life of the option and circumstances can cause an intervention by them leading to either depreciation or appreciation both equally likely resulting in a symmetric smile. ...
... distribution has a heavier left tail & a less heavy right tail than the lognormal distribution. A deep-out-of-the money call with a strike price of K2 has a lower price when the implied distribution is used than when ...
... heavy than the lognormal distribution. Also referred to as volatility skew/volatility ...
... declines in value, leverage increase making equity more risky and thus resulting in a higher volatility. Crash phobia - i.e. the market players assigning ...
... True distribution has both a less heavy ...
... This shows the variation of implied volatility with the time to maturity of the option. Example of a volatility surface 10 Strike Price 80 ...
... function of maturity when short-dated volatilities are historically high as there is an expectation that volatilities will decrease. The volatility term structure tends ...
... from one day to the next. The Greeks calculated using the BSM are correct as long as the volatility used for the option is its current implied volatility. Sticky Delta Rule. This assumes that the relationship between an option price and S/K will remain the same ...
... The first corresponding to favorable news and the second to unfavorable news. The true probability distribution is bimodal. The implied volatility ...
