Questions tagged [volatility-surface]
The volatility-surface tag has no usage guidance.
60
questions
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39 views
What's a sensible way to measure correlation in the volatility surface?
Lets say I construct a parametrisation of the volatility surface that lets me infer dynamics i.e correlation between strike vol.
Is computing the sample correlation (after controlling for spot-vol ...
1
vote
1answer
121 views
Clean noisy data from arbitrage
My problem is that I have a surface of implied black volatilites that is supposed to represent market data. However, the surface contains some slight arbitrage.
More precisely, the graph contains ...
0
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0answers
36 views
Local volatility from Impled Volatilty by Dupire (interpolation)
Hellow,
I'm doing my final project and now i have to implement Dupire's formula to get local volatilities from Implied volatilities.
I have already got the implied volatilities by Newton so i have the ...
2
votes
1answer
118 views
Does shifting/scaling the IV surface relatively/absolutely introduce arbitrage?
I am fitting a volatility surface for vanilla call options. I do this by fitting low-degree polynomials (or cubic splines) along the strike dimension per maturity and then linearly interpolating ...
3
votes
1answer
97 views
Warrant volatility surface differs for each issuer
I have written a rudimentary program for fitting volatility surfaces for warrants of call and put options for the purpose of some basic scenario analysis. In my country, trading options privately in a ...
2
votes
0answers
76 views
How to interpolate on an implied volatility surface based on forward moneyness?
Should be a simple matter, but perhaps I'm misunderstanding something fundamentally. Look first at the below image of the BVOL surface from Bloomberg, to my understanding from looking at the white ...
2
votes
2answers
420 views
Why use moneyness as an axis on a volatility surface
A simple volatility surface might have X axis = strike, Y axis = expiry and Z axis = implied volatility. But in many papers I see them use moneyness instead of strike. I have two questions.
Why do ...
1
vote
1answer
111 views
Newbie question on volatility surface building
I am trying to build a prototype equity volatility surface for pricing european call options, as a way of learning a new programming language that I am looking at.
Is there anything wrong with the ...
0
votes
1answer
44 views
Is the moneyness of a barrier option based on the strike value or the barrier when mapping to a volatility surface?
Say you have a down and in put barrier option with a strike of 100 and barrier at 60. If the stock price sits at 90, which value would you use to determine the moneyness? Is the option in or out of ...
6
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0answers
152 views
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 ...
0
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0answers
41 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
64 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
85 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
votes
1answer
172 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
135 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
votes
2answers
262 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
votes
1answer
274 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
votes
1answer
98 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
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1answer
103 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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0answers
63 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 ...
1
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0answers
39 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}},
$$
where $\hat{\sigma}:[0;+\infty)\times[0;+\...
2
votes
1answer
186 views
FX convention and volatility calibration
In general, call/put options are quoted with respect to their Black-Scholes volatility.
In the FX market we define the risk reversal volatility as $$\sigma_{25-RR} = \sigma_{25-Call} - \sigma_{25-Put}...
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1answer
88 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 ...
1
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0answers
47 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
149 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
votes
2answers
557 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 "...
0
votes
1answer
67 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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vote
0answers
187 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 ...
1
vote
1answer
320 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
106 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
vote
1answer
153 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
votes
2answers
80 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
65 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
74 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
vote
1answer
94 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
vote
1answer
80 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
227 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
458 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
155 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
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0answers
264 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
608 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
votes
0answers
109 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
1k 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
152 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 (...
1
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1answer
224 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
203 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:
...
5
votes
0answers
276 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 ...
1
vote
1answer
168 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
715 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
votes
2answers
243 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 ...
