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 Volatility Smile
Issued on September 22 2011 par Strategies-options.com
Implied volatility markets sometimes seem to be symmetric.
We know from Volatility Skew that there is no such a thing as constant Implied volatility out there. Stock Markets for example show up some skew, say, an asymmetry on implied volatilities. 'Out of the money' calls are oversold in order to fund some overbought protective 'out of the money' puts.
I - Symmetric markets happen Stock Markets options are skewed to accomodate with the downside risk on those trades. But the Forex. Forex markets are of a kind of symmetric risk trading place. - A too strong currency is a bad thing because it leads to higher prices for a country relative to an other one. - A too weak currency is a bad thing for a country to another because it leads to show up a relative weakness on economy. II - Volatility Smile As far as the risks are symmetrical, options markets exhibit different out the money Implied volatilities, increasing for calls and puts, as far as they get more out. Thus it looks like a smile. III - Volatility Smile Representation  Download our Pricers : here Next : Volatility Surfaces : A First Attempt Previous : Volatility Skew Related Pdf : - Modeling the Volatility Smile - Equity-Related Volatility Skew - Volatility Skews and Extensions of the Libor Market Model - Smile Curve For FX Options 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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