Emanuel Derman wrote a great paper in 1999 about volatility regimes and the adjustments the market makes during these periods (sticky strike, sticky implied tree, sticky delta, etc).

Has any research been done on the transitions between these regimes, even if identifying them retroactively?

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    $\begingroup$ FWIW, I believe that particular classification is a dead-end. SS / SD differences is usually something you observe for different asset classes, not for the same asset across time. Please share if you find any empirical evidence to the contrary. $\endgroup$ – onlyvix.blogspot.com Jun 5 '16 at 14:25
  • $\begingroup$ I believe on Figure 8 of the document he observes transitions from different regimes all applying to the S&P 500 from September 1997 to October 1998. $\endgroup$ – Jared Jun 5 '16 at 21:31
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    $\begingroup$ I don't think you can classify regimes to such short periods of time, especially when there are many other driving factors - i.e. when the index goes 'jumpy' around august '98, this coudl jsut as easily be attributed to something like Russia defaulting... $\endgroup$ – will Apr 4 '17 at 20:52

I don't know about sticky implied tree, but for sticky strike and sticky implied delta the classification is not that dead end as onlyvix.blogspot.com might think. Look at Lorenzo Bergomi's Smile Dynamics IV paper. He defines the skew stickiness ratio SSR which roughly quantifies how much the ATMF volatility moves conditional on a move of the underlying.

  1. The sticky-strike regime corresponds to SSR = 1 : as the spot moves, implied volatilities for fixed strikes near the money stay frozen – the ATMF volatility slides along the smile.

  2. The sticky-delta regime corresponds to SSR = 0. The whole smile experiences a translation alongside the spot: volatilities for fixed log-moneyness are frozen.

The paper is a bit technical but worth reading as he classifies stochastic volatility models according to SSR's.

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    $\begingroup$ That's quite some username you've gone for there... $\endgroup$ – will Apr 7 '17 at 22:54
  • $\begingroup$ That's my random username generator talking ;-) Not that uniformely random btw $\endgroup$ – ujsgeyrr1f0d0d0r0h1h0j0j_juj Apr 9 '17 at 10:36

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