I am trying to recreate the CBOE's SKEW Index in Python. I need to calculate the errors terms that are adjustment terms for the differences between the
atm strike and the
error_term_1 = -1 * (1 + np.log(forward / atm_strike) - (forward / atm_strike)) error_term_2 = 2 * np.log(atm_strike / forward) * ((forward / atm_strike) - 1) + ((np.log(atm_strike / forward) ** 2) / 2) error_term_3 = 3 * (np.log(atm_strike / forward) ** 2) * ((np.log(atm_strike / forward) / 3) - 1 + (forward / atm_strike))
According to the example when the
forward is equal to
1106.85 and the
atm_strike is equal to
1105, the correct values are:
epilson_1 = 1.40E-06 epilson_2 = -4.2E-0.6 epilson_3 = 1.176E-11
My first and second formula gives the correct answer. My third formula doesn't however. What do I need to change?
I see in different source that the definition is as follows:
Still I am getting a different result when I remove
3.. Please help!