Questions tagged [volatility-surface]
The volatility-surface tag has no usage guidance.
52
questions
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Hedging : effect of not matching the term structure of skew
Let us assume that we construct a pure stochastic volatility model calibrated to the implied volatility surface, but that the model does not replicate accurately the observed term structure of the ...
1
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0answers
42 views
American ImpVol Surface w/ DIVs - Is there any method that works in 2020?
My goal is simply to retrieve, from market quote data, the Implied volatility smiles and vol surface for American Options on US Equities (Calls and PUTS). Have not found a reliable way to do this, ...
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0answers
35 views
VolCube in RQuantLib
Working with RQuantLib for the first time and trying to understand how the Swaption Vol Cube is being built. I am looking at volCF2CubeK.R file and my general understanding is that we are collecting ...
1
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1answer
46 views
Non-Trivial ATM Volatility in Vol smile construction from Market data on US Equities
have 2 quick questions please help.
Constructing vol smile (OTM puts & OTM calls) from US equity market data. for Parabolas fit or other methods, the choice/method for ATM vol is non-trivial, ...
3
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0answers
75 views
$\frac{\partial C_{BS}}{\partial T}$ in local volatility derivation in terms of implied volatility
In Gatheral's book, in the derivation of local volatility in terms of implied volatility, we use the regular Dupire formula
$$
\frac{\partial C}{\partial T} = \frac{1}{2} \sigma^{2}K^{2}\frac{\partial^...
0
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1answer
157 views
Implied Volatility vs Actual Volatility Calculation
To build a term structure I need different volatilities; as I don't get them at every strike, I use interpolation technique to calculate the rest and plot. This is how I calculate the implied vols. ...
3
votes
1answer
118 views
LIBOR market model with stochastic volatility
I have read that there are 3 types of pricing models: local volatility, stochastic volatility and stochastic-local volatility models (LSV).
I am now looking at interest rates exotics pricing models ...
3
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2answers
126 views
Interpolation of FX Vol Surface from non-uniform strike vs tenor grid
TL;DR
I'm trying to fit a vol surface to market FX options quotes in order to build a local vol model to price with. Unlike listed options that typically have a nice rectangular grid of strikes and ...
2
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1answer
203 views
simulate volatility surface
Assuming I have a stochastic volatility model for an asset, if I wanted to use it for pricing I would proceed in the following way:
Use Euler discretization to simulate a sample path of the price and ...
3
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1answer
91 views
Options when there's no VolSurf - Emerging/Frontier Markets
Context:
Most emerging/frontier markets have no or very thinly traded volatility surfaces for their equity markets (single name and indices alike), furthermore, they usually have restrictions on Short-...
0
votes
1answer
87 views
Book/ Articles recommendation for Volatility models
I am looking for references on volatility models. I want to gain more insights on these models but have a little background as of now. Thus, looking for references that can pick the topic from basics ...
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57 views
How do we compute FX volatility for any given FX strike and time to maturity?
I want to implement a function which is passed two inputs: a strike and a time to maturity (which can be arbitrary within a specified range) and returns an FX volatility for this strike and maturity ...
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31 views
Terminology : definition of skew for a volatility smile
Is there a generally accepted definition of skew for volatility smiles? Is skew always defined as
$$
\frac{\partial{\widehat{\sigma}(K,T)}}{\partial{K}},
$$
where $\hat{\sigma}:[0;+\infty)\times[0;+\...
2
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1answer
105 views
FX convention and volatility calibration
In general, call/put options are quoted with respect to their Black-Scholes volatility.
In the FX market we define the risk reversal volatility as $$\sigma_{25-RR} = \sigma_{25-Call} - \sigma_{25-Put}...
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1answer
84 views
What is the use of implied volatility, the skewness and its surface? [closed]
I am leaning about options, saw various video lectures and read some literature including John C Hull. After a while I forgot where I started and where I am currently and I unable to connect dots. The ...
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0answers
44 views
What is the use of volatility surface and how do traders use it? [closed]
I was going through a use case where
At time $t_{t}$, the price of a call option is $C1$ and the price of underlying stock is $S1$
At time $t_{t+1}$ day, the price of a call option is $C2$ and the ...
3
votes
1answer
120 views
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 ...
3
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2answers
450 views
What does it mean to “calibrate vols”
As a beginner, it can sometimes be hard to discern what different terms and phrases mean in QF. I've heard multiple people such as academics and market-makers say things like "calibrate vols" or "...
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1answer
61 views
How to extrapolate shorter tenor from volatility surface?
Overnight(ON) volatility is the first input of a volatility surface, 1 weeks, 2 weeks and so on...
Say I have a volatility surface with ON expiry of 1 day, is there anyway to extrapolate volatility ...
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0answers
56 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 ...
0
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2answers
141 views
Swaption Vol surface
¿How can I get the implied vol from a swaption when I have a vol surface with the maturity of the option and the tenor of the swap? For example I want to know what is the volatility for a swaption ...
0
votes
1answer
86 views
Volatility time weights calculation
I. Clark introduces the concept of volatility time in Foreign Exchange Option Pricing under which the implied volatility should be interpolated in time with the formula below:
where w is a weight ...
1
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1answer
137 views
Delta Skew Measure as volatility changes
I'm reading Trading Volatility (Colin Bennett) and there's a phrase regarding delta skew measure on p. 208 that I don't quite understand:
An example of skew measured by delta is [25 delta put - 25 ...
0
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2answers
76 views
calibration - negative call price [closed]
Im trying to calibrate a stochastic volatility model to market. I end with an MSE of 2-3 with approximately 500 quotes. Some out of the money options with call-price under 1 dollar ends up being ...
1
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0answers
56 views
Relationship between Calendar Spread Arbitrage and Probability Density Function (pdf)
We all know that the butterfly spread no-arbitrage condition can be expressed as an inequality restriction on the second-order derivative $\partial ^2C/\partial K^2 \geq 0$, which also means the ...
0
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1answer
66 views
Does the Heston calibration have to be done on an arbitrage-free surface?
In a similar way to local volatility?
I'm trying to calibrate a surface, but the results aren't convincing, so I was wondering if it was necessary to first use a way to regulate it (splines, ...
1
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1answer
86 views
Should we calculate the implied volatility surface with Put+Call?
We have Sungard data (MarketPlace8), but for nearby maturities the ask-bid of the calls are all the same when we are out of the money (call), so should we calculate the implied volatilities of calls ...
1
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1answer
52 views
Surface plots of the mean-variance efficient frontier
3d surface plots contain an X, Y and Z axis. For the mean-variance efficient frontier:
X axis is portfolio volatility ($\sigma_p$)
Y axis is portfolio expected return ($\mu_p$)
any ideas for what ...
2
votes
1answer
169 views
How to get the local volatility from IV surface?
I have to work on Dupire's model.
If I understand Fengler's paper well enough we can get the local volatility from implied volatility smoothed surface because if not it would look all bumpy like the ...
4
votes
1answer
320 views
Different volatility surface ( Local vol, Stochastic vol etc.)
Despite many questions about local and stochastic volatility available on this forum, i still have a few doubts left. Essentially I am seeking validation whether I am interpreting things correctly.
...
2
votes
1answer
125 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 ...
2
votes
0answers
202 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?
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3answers
512 views
Why is volatility skew/smile for long term options flatter compare to short term options?
Volatility skew/smile for long term options is flatter compared to short term options, could someone help to explain why is that the case? Thanks
2
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0answers
92 views
Vol surface fitting to options on commodity futures
Trying to fit variants of SVI (Zeliade method, SSVI etc) to options on futures price data. One of the core ideas of the SVI parameterization is the absence of calendar spread arbitrage.
I think the ...
7
votes
1answer
826 views
Why do we fit volatility surfaces implied from a option pricing model to the empirical data?
As far as I understand volatility surface. It is made of 2 components, the volatility skew/smile and the volatility term structure. Together they form something like
Implied volatility is ...
3
votes
1answer
138 views
Question about volatility surfaces
As a learner, I'm curious to know the answer to 2 questions regarding volatility surfaces
1) It's stated that volatility surface should be flat accdording to Black-Scholes model. Why is that? Time (...
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1answer
190 views
Compute implied volatility surface of a put option from a call option
Suppose the function double bsCall(double S0, const double &K, double T, double r, double sigma) computes analytically the Black-Scholes price of a call option ...
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0answers
170 views
Pricing forward start Cliquet option with implied volatility with Dupire
I have the following implied volatility matrix of a stock index downloaded the 15th February 2019, the value of the stock was 3188.44 at the time:
...
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0answers
226 views
Implied Funding/Borrow Costs in Short-Dated ETF Option Prices
I'm struggling with some anomalous behavior in an analysis I'm running and was hoping for some advice/insights. I'm attempting to extract the implied funding/borrow costs from ETF option prices (say ...
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1answer
143 views
Volatility surface tenors
I don't think this has been asked before, but are the tenors on a volatility surface out of spot date for the currency pair or out of value T+0?
1
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1answer
624 views
Getting option volatility off vol surface
I am currently looking into FX options. I am given a delta-tenor vol surface and I want to get the volatility of an option given its strike and time to expiry. I am reading about the method used and ...
2
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2answers
198 views
Difference between volatility measures of a basket of assets
I am trying to understand intuitively the difference between two different measures of realized variance of a basket of assets.
The first measure I am aware of is when you take the realized variance ...
4
votes
1answer
401 views
SSVI parametrization motivation , SSVI implementation
I've read the following paper of Gatheral and Jacquier https://arxiv.org/pdf/1204.0646.pdf about volatility surfaces. I'm thinking about the SSVI surface. Is there any motivation why they choose ...
1
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1answer
98 views
Filter options used in the construction of implied volatility surface
Currently trying to model the IV Surface using the APPL options, to compare how different models of the underlying move the IV Surface. However, after getting the data, I've seen that some option ...
4
votes
1answer
601 views
Intuition for the Effect of Vol of Vol in Heston Model on Volatility Surface
I was hoping someone could describe the economic/mathematical intuition behind the effect that the vol of vol parameter has on the volatility surface, in particular the slope to maturity. Take for ...
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0answers
76 views
How to derive the change in portfolio value as given by Gatheral in The Volatility Surface?
I’m trying to follow Gatheral’s Volatility Surface Ch. 1, i.e. the text (pg. 5 and 6) linked to in this question, with further text discussed in this question. I can’t figure out how to arrive at the ...
1
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1answer
365 views
SVI Zeliade Vol Surface Calibration
Have a question about SVI Zeliade Implementation (pdf, overview).
The paper suggested to do 2 rounds of optimization, first for $\{a,b,\rho\}$ and 2nd for $\{m,\sigma\}$.
Does anyone know if I can ...
4
votes
1answer
926 views
What interpretation can I derive from an inverted volatility surface?
While pulling some reports from Bloomberg today I came across the volatility surface for NYSE: ONDK, set for an earnings call next Monday. From what I've seen before (not much, 1 month on the job and ...
4
votes
1answer
829 views
Proof of arbitrage-free implied volatility surface in relation to local volatility surfaces
I'm looking for proof of the following statement:
"The existence of an arbitrage-free implied volatility surface is
equivalent to the existence of a well-defined local volatility
surface."
3
votes
1answer
3k views
Implied Volatility Surface - log forward moneyness
I'm reading this paper by Fengler (2005) and have came across the below snippet.
context: Implied volatiltiy surface plot has 3 dimensions IV, Strike, Time to Maturity. Author replaced Strike with ...
