Can we say that the volatility smile contain for sure stochastic volatility information ?

If yes why ?

Saying that BlackScholes does not explain the smile does not necessary mean there is an embedded stochastic volatility information in the smile (?)


  • $\begingroup$ Stochastic volatility is only one possible reason for the smile. Others could be non-normal returns, non-continuity of stock prices (jumps), or even problems with the option price data. $\endgroup$ – Alex C Apr 23 at 17:09
  • $\begingroup$ I'd see the volatility smile more of a positioning tool to understand whether the market is downside or upside in its expectation. You could argue that if you have different views on implied vol than the smile shows for Call/Puts you are able to potentially figure out whether there is mispricing in the market or by you. $\endgroup$ – CleverseekerRover1 Apr 25 at 11:26

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