# Questions tagged [volatility-smile]

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### FX ATM-volatility quotes

Is the implied volatility ATM the same for a currency pair as for the inverted currency pair. I.e, can I expect the same volatility quote ATM for (for an instance) EURUSD as for USDEUR? And does this ...
65 views

### Do all stochastic volatility models capture volatility smile?

I started reading SABR model recently. In Wiki page, it states that the SABR model can capture volatility smile in derivative market. However, I do not see how it does so.
47 views

### FX Smile Polynomial Fitting

I am unable to reproduce the example of FX polynomial smile interpolation on page 59 of the book FX Option Pricing by Iain Clark shown below. Consider just the ATM volatility as a specific case. I ...
30 views

### Looking for a math description of upside/downside implied vols - does Dupire help?

This is in continuation of this post which explained the meaning of the vols in the vol smile as follows: Suppose you have a downsloping vol smile. Then, the fact that the vol is higher on the ...
108 views

### Hedging vega risk with varswaps

I have encountered a statement that in summary reads like this: Varswaps became popular after the LTCM meltdown due to high levels of implied volatility the market was seeing at the time. Hedge funds ...
17 views

### How can I extrapolate a Smile curve of Maturity T for a longer maturity T+1>T

I have a interpolated vol smile curve for maturity 2 years and I would like to extrapolate it to a 5 years.
66 views

### When Fitting Implied Vol in, implied vol=ax²+bx+c, why is better to use moneyness than delta as independent variable?

I am trying to construct a smile curve using Option data, I can either interpolate implied vol vs delta or implied vol vs moneyness.
78 views

### A PARADOX? - relationship between risk reversal (slope of vol smile) and digital price

how do we resolve this seeming paradox? lets take GBPUSD now: it has a negative risk reversal, ie putvols > call vols , because traders expect spot to fall, so they are buying puts, pushing their ...
222 views

### Heston volatility surface in Python QuantLib

Does anyone have experience with the Python QuantLib function HestonBlackVolSurface? I'm trying to produce a 3D plot of the volatility surface as done in the ...
93 views

### Option Volatility Smile vs Delta

I am new to options trading and have been trying to better understand the relationship between implied volatility, delta, and moneyness. I was wondering how a call option's implied volatility can go ...
108 views

### Why SVI does not fit well short-maturity options?

As I understood, the SVI is widely used among practitioners. However, it is mentioned in many published papers (including ones written by Gatheral), that the SVI model does not fit well short-maturity ...
411 views

### How does volatility skew change with underlying spot?

We know that generally ATM implied vol is negatively correlated with the underlying spot for equity indices, i.e. implied vol goes up when spot moves down. Therefore I wonder if there are any ...
70 views

### Hagan et. al original argument for SABR

In the original SABR paper (Hagan et al 2002 ), the introduction of the famous model is motivated by the observation that local volatility models spot dynamics work the wrong way. As the spot ...
56 views

### Extreme AUDJPY FX vols

I'm seeing levels of -12% of market strangle vol at 25 delta for AUDJPY at 20Y onward that is causing havoc with my pricing routines, the 10 delta market strangle is trading around -6% which is again ...
317 views

### Intuitive explanation for the smile in FX

What is the intuitive reason for the smile in FX? For equities this usually down to crash risk.
128 views

### Downward-sloping volatility skew in equity prices

Iām learning the market price for FRM, and Iām having a hard time understand a question in the assessment: From my understanding, the volatility skew for equity is the graph on the right upper corner:...
169 views

### Risk reversal basics and trading strategies

It it written in the book by Giles Jewitt: "If a currency pair had a completely flat volatility smile, the risk reversal strikes would be positioned approximately symmetrically around the ATM strike ...
57 views

### FX Smile Curve Extrapolation

How a smooth smile curve is generated from 5 smile points : 10D RR, 25D RR, 10D SM, 25D SM and ATM? What are the commonly used extrapolation and interpolation techniques? I have seen people ...
119 views

### FX smile extrapolation

Typically, 5 points data is available for smile construction : 25D RR, 25D SM, 10D RR, 10D SM and ATM. Questions: 1. How is a smooth smile curve generated with the help of these? 2. How is ...
173 views

### Smile Strangle and Market Strangle

What is the difference between Smile Strangle margin and Market Strangle Margin in fx derivative market? Is it just variation in convention or is there any mathematical relationship between the two?