# Emanuel Derman Volatility Approximation [closed]

Can someone please explain Emanuel Derman's volatility approximation as given below? Under Linear Skew

If skew is assumed to be linear, at least for strikes relatively close to the money, then Derman’s approximation can be used.

Derman’s approximation assumes a linear put skew and a flat call skew. It is a function of three variables, namely:

1)ATM (forward) volatility. 2)Slope of the skew. 3)Maturity of the swap.

I would also like to understand what slope of the skew signifies.

Reference from here: https://bookdown.org/maxime_debellefroid/MyBook/variance-swaps.html

• Are you referring to Appendix B (and specifically formula B.8 on page 42) in Derman's More Than You Wanted to Know... paper from 1999? Please clarify. emanuelderman.com/wp-content/uploads/1999/02/… Commented Apr 18 at 13:11
• Commented Apr 18 at 23:01
• Yes, that equation $K_{0,T}=\sigma_{ATMF} \sqrt{1+3 T skew^2}$ is from the Derman paper I cited Commented Apr 19 at 8:29