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 Volatility Skew
Issued on September 21 2011 par Strategies-options.com
Implied volatility derived using standard models isn't the same neither for every strike of a particular maturity. nor for different maturities.
If it can't be denied that standard options (plain vanilla's ) markets are extremely mature today and that models which enable the pricing / quoting process are widely spread, any of these models is able to explain perfectly market prices.
I - Options markets are led by supply and demand. As for any market on earth, options markets are all led by the supply and demand. As far as quoted prices don't breakout the line (immediat arbitrage opportunities), they may go away sometimes rather strongly from their theoretical prices. II - Volatility Skew Typically for stock markets, financial risk is located on the downside. Traders should rather thus more particularly buy protections against unexpected declines, Stock market crashes. The same way, an old market proverb says that trees do not rise up to the sky. Thus it becomes natural for them to sell calls short. We end in an imbalance between calls and puts trades. The first ones are sold, and the second ones are bought (sometimes by using the cash made by the formers). III - Skew Representation  Download our Pricers : here Next : Volatility Smile Previous : Implied Volatility Pdf connexes : - IMPLIED VOLATILITY SKEWS AND STOCK INDEX SKEWNESS AND KURTOSIS IMPLIED BY S&P 500 INDEX OPTION PRICES - Equity-Related Volatility Skew - Volatility Skews and Extensions of the Libor Market Model - VOLATILITY SMILES, SURFACES AND OPTION PRICES - Modeling the Implied Volatility Surface - Implied Volatility Surface OPTIONS 101 - INDEX OPTIONS 101 - CHAPTER I OPTIONS 101 - CHAPTER II OPTIONS 101 - CHAPTER III OPTIONS 101 - CHAPTER IV OPTIONS 101 - CHAPTER V OPTIONS 101 - CHAPTER VI Strategies-options.com |
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Don't Trade Options Blind - Know Your Implied Volatility
Don't Trade Options Blind - Know Your Implied Volatility
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