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In studying skew I've been advised to focus on understanding on components that affect it. One such component that's been recommended to me is the relationship btwn RV-IV and realized skew. Allegedly, there should be a strong correlation btwn the 2 (skew steepens when RV exceeds implied), but when I regress one on the other, I find no such relationship. Am I wasting my time?

I also cannot think of some fundamental theory that might explain the relationship. What would be the theoretical underpinning for why this happens? Hedgers buying tails?

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  • $\begingroup$ Who told you to look for the relationship? Maybe they can offer you relevant literature / data? $\endgroup$ Feb 27 at 6:56
  • $\begingroup$ An old contact who I am no longer in touch with. Unfortunately I cannot reach them $\endgroup$
    – user61297
    Feb 27 at 7:03

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